Five things to know about Goldman Sachs’ private equity real estate fund comeback

It has been 14 years since Goldman Sachs last closed on a private equity real estate fund. Its Real Estate Investment Partners fund, incidentally its 14th such fund, looks markedly different to the Whitehall Street funds that were synonymous with the bank’s rise in the market.

The fund’s closing, which was announced last Friday, is the first private equity real estate offering of a repositioned real estate operation within Goldman Sachs Asset Management comprising the bank’s Real Estate Principal Investment Area, the platform which ran the Whitehall funds, and the real estate teams of its Investment Management division and its Special Situations Group.

As such, it was always destined to have a different feel to funds one through 13, the last of which, Whitehall Street International 2008, was closed on $2.34 billion in 2008 before poor performance effectively put paid to the series. Whitehall’s biggest – but ultimately fatal – fund: the $4.2 billion Whitehall Street Global Real Estate 2007, ultimately returned 75 cents on the dollar.

While many of the senior executives running the real estate activities at the bank today were there at that time, much has changed since then, namely: a global financial crisis, recovery, growth cycle and then another crisis in the form of the covid-19 pandemic. Those remaining executives put fires out, restored value and, ultimately created a new track record from which the bank could leverage.

Julian Salisbury, global co-head of Goldman Sachs Asset Management, reflected on this in the bank’s announcement of the final closing: “This fundraise reflects the strength, track record and breadth of our global real estate platform. Our tenured team has navigated complex changes in the real estate market over multiple cycles and produced strong outcomes for our clients.”

Cue a $3.5 billion fundraising for the first in the bank’s rebranded real estate equity series.

But while the amount raised was in keeping with the capital raising successes of the predecessor Whitehall Street funds, there are some other notable comparisons and differences between Goldman Sachs’ old and new offerings. Here are five:

1. Risk down

Real Estate Investment Partners carries a lower risk and return profile than the opportunistic Whitehall Street funds. The bank says this vehicle has a core-plus-to-value-add strategy. Per PERE’s prior reporting, this means 12 to 15 percent IRR at the asset level. This will be achieved with leverage not exceeding 60 percent.

2. Partial sight

While Whitehall Street funds were often raised as blind pools, the final closing of Real Estate Investment Partners has happened with the vehicle already 50 percent deployed. The capital has been deployed into logistics, residential and office markets in the US, western Europe, Japan and Korea.

3. Old and new money

If you are looking for evidence of institutional forgiveness, this vehicle provides that. PERE has learned there is overlap in the investors which backed Whitehall Street and have now Real Estate Investment Partners. The bank itself is also understood to have returned as a 20 percent investor, demonstration enough that the work of its real estate executives has restored and harnessed faith inside and out. In terms of core-plus and value-add equity deployment, the bank had invested more than $7 billion in the years prior to the fund launch. This activity precipitated and, in part, seeded the fund.

4. A sum of parts

Goldman Sachs announced a $3.5 billion fundraising for Real Estate Investment Partners. But that figure in fact represents an aggregate of fund, side-car and co-investment vehicles. The bank has not confirmed a breakdown. The capital came from a mix of institutional investors, including pension funds, insurance companies, sovereign wealth funds, family offices and high net worth individuals.

5. Opportunistic tomorrow

PERE understands that, while Real Estate Investment Partners is currently a core-plus to value-add proposition, the bank continues to include opportunistic vehicles on its slate, indicating private real estate’s highest risk and return profile could, once again, become a major third-party fund offering alongside Real Estate Investment Partners and the bank’s Broad Street real estate debt and Vintage secondaries series.