Private Equity & Real Estate: A Profitable Pairing

In a yield-starved investment market, real estate has been roaring past all competitors to provide tremendous returns with minimal risk. Has the real estate investment market witnessed a temporary "boom", or has it matured into an investment class all its own?

The Real Estate Fund Services division of Ernst & Young seems to think real estate has finally come into its own, and will continue to provide excellent returns in a market that has been slow to recover from the stock market bust of the recent past. Real estate investing is now mainstream.

Private equity investment in real estate has reached a level that marches past that of a trendy alternative asset, to an individual category worthy of some attention and consideration on the part of any investor seeking relatively safe investments with moderate to exceptional returns.

The tremendous growth in the real estate market, coupled with the increased availability of private equity, has created an unusual but mutually beneficial situation: mainstream portfolio investing of private equity in real estate. The competition for new investment dollars is fierce; non-traditional property, property development, international investing and the fact that the lending community continues to push the envelope in underwriting real estate loans has continued to fuel the influx of investment capital.

According to Ernst and Young, the level of available private equity for real estate investment is at an all time high, and the number of new investment funds that have been created since 2004 are remarkable. Fund managers that achieve success in the marketplace of 2006 must be able to provide stabilized assets with predictable cash flow to the average institutional buyer. This will be a key differentiator of the successful fund in a highly competitive, ever-shifting landscape.