PE Real Estate: Admission and Withdrawal of Investors

Private equity real estate funds- weighs too much for a single term, doesn't it?

Gulping down the concept of PE real estate funds is never an easy deal, especially for a person who is planning to deal in it. So that brings us to first make the comprehension slightly easier.

Private real estate funds provide a means to a real estate developer to access a pool of capital for making new investment deals. This dedicated pool makes investment easier as it eliminates the need of raising capital on deal by deal basis.

The nature of investments is illiquid in Indian real estate, meaning that investments can't be readily converted into cash. Hence, there are many structural issues hinged to making investments in Private Equity. There are broadly two types of fund structures that are ruling the Indian real estate market in particular- open ended fund structure and close ended fund structure.


Open ended fund structure makes it possible for the investor to enter or exit the fund. Though this structure is preferred by many investors, it has its loopholes too. This open ended structure gets unmanageable since establishing a fair value for each contributing and withdrawing investors makes it unworkable at times.

Close ended funds, on the other hand, make all the investors to join the private real estate fund at the same time with no flexible withdrawal rights. That’s mainly because flexible withdrawal rights cause significant problems as timely liquidity is hard to come by. One option is to sell off the real estate property and get the liquidity issue resolved. However, sales issue takes a considerable amount of time to consummate the property into cash. Also, forced sales generally don’t yield high profits. The scarcity of buyers in the market is yet another issue that might act as a negative catalyst triggering liquidity.

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