Real estate fund sponsors are frequently raising capital from investors to capitalize acquisitions and grow the fund’s asset portfolio. The majority of real estate fund securities offerings tend to be equity securities (LLC Membership Interests or Limited Partnership Interests). There are some significant advantages to raising equity capital for a real estate fund – but what about executing an offering of private debt securities?

Here are some key points to evaluate when considering a debt offering for a real estate fund:

– Private debt tends to be more expensive than institutional debt financing. When real estate funds have debt in the capital stack for the fund – it tends to be private equity from the offering paired with institutional debt.  

– Part of the allure of a real estate fund is benefitting from lease or other operating income and capital gains from sale of the property. It is very difficult to provide participation in accretive value of an asset with a debt instrument – thus a real estate fund capitalizing with private debt would have to alter the sales pitch to investors to focus more on “stable recurring interest income” vs. the speculative upside of capital gains on an asset.

– Should the real estate sponsor intend to leverage senior institutional debt – the balance sheet being mostly laden with private debt may hinder the ability of the fund to secure institutional financing.

– A debt offering may work well as a bridge funding round to bridge between institutional financing.

– One potential benefit of a debt based investment opportunity would be simplicity. Debt offers predictable and scheduled interest payments, making the real estate fund more attractive to income-focused investors. This can help attract a different class of investors, such as those seeking consistent returns from debt-based instruments.
 
Interested in raising capital? Questions regarding raising capital for a real estate fund? Call us today to discuss! (720) 586-8610