Private Real Estate Funds Formation: Special Considerations

Summary

While closed-end real estate private equity funds (Real Estate Funds) are generally structured similarly to traditional private equity funds, there are several key differences. There are sometimes significant regulatory differences under the Investment Advisers Act, the Investment Company Act and similar state laws, stemming from the unique nature of Real Estate Fund investments. Second, Real Estate Fund managers often have different potential conflicts of interest than private equity fund managers, including because Real Estate Fund managers often seek to retain their affiliates to provide various specialized services to the fund for a fee. Fund economics in Real Estate Funds can also be relatively unique, particularly where the Real Estate Fund is receiving income from operations. Finally, Real Estate Funds face special tax considerations. This practice note touches on these topics, identifying key differences and providing guidance for how to analyze and address them.