Well-managed real estate funds typically provide annual above-market returns for limited partners (LPs), justifying the requirement that investors qualify with a substantial amount of upfront cash. The ability to provide big upfront commitments makes high net worth individuals in hot demand as funds look to grow their assets under management. This arrangement works out well for investors looking to generate greater, more consistent income, as long as quarterly disbursements remain steady.
While qualified investors are certainly not in short supply, the ability of some real estate funds to continue to deliver outsized returns may be shrinking due to current market conditions. How operators manage today’s market challenges will impact the performance of their funds for investors, their ability to attract new LPs and their ability to increase asset values for future liquidation events.