Infographic: Working with Real Estate Private Equity Funds
Understanding Real Estate Capital
Commercial real estate financing comes from four different sources of capital.
Private equity has roughly 28%* market share of overall real estate financing.
Capital Stack Position
Real Estate Capital Markets
Private market sources (70%)
- Commercial Banks
- Debt Funds
- Equity Funds
- Direct Investment
Public market sources (30%)
- Commercial Mortgage-Backed Securities
- Business Development Companies
- Mortgage REITs
- Equity REITs
- Real Estate Operating Companies
*70 percent private multiplied by 40 percent equity. All data per NAIOP Research Foundation
A commercial property is typically financed with four tranches of capital. These are ‘stacked’ according to cash flow priority and their upside potential for investors:
- Common equity
- Preferred equity
- Mezzanine debt
- Senior debt
A private equity firm will typically invest in the equity tranche that aligns with its risk profile (Core/Core-Plus, Value-Add, or Opportunistic).
Certain firms also purchase or make senior or mezzanine loans for distressed properties.