With fundraising in 2009 set to retreat to levels not seen since at least 2006, and possibly even 2005, some GPs are considering pausing their capital-rising efforts for the next six months while LPs catch their breath.
A handful of managers though, are even contemplating moving away from the discretionary blind pool model for the foreseeable future. As former Westbrook Partners' managing director Jeffrey Kaplan explains to PERE on p.11, this is perhaps not the time to be going out raising a large, or even small, private equity-style fund.
For Chris Macke, a former GE Real Estate vice president, the programmatic joint venture may be the model of the future.
Macke has just set up his own private equity firm, General Equity Real Estate, after five years at GE Real Estate, where he focused on buying single-tenant commercial properties. Macke will be joined by other GE Real Estate net lease executives in the near future.
As the firm scans the investment horizon, Macke believes the blind pool fund model might not be the most appropriate fund structure for the times.
“Investors don't want to hear only the promise of value-added and opportunistic investments offering 25 percent IRRs or higher when there is a good chance they will lose their principal,” he said. “They want more certainty, and some are looking for more control. A programmatic joint venture is one way of working more closely with your investors, which is how we prefer to operate.”
Programmatic JVs have become increasingly popular among investors as they allow LPs to partner with real estate fund managers to target specific real estate sectors, but gives them greater control over the deals being done.
Rather than giving a GP full discretion over investments through a blind pool structure, programmatic JVs require much more hands-on dealings with LPs.
Macke said General Equity will focus on single tenant properties, with long leases and stable long-term cash flows. He added that the firm would seek IRRs in the mid-teens, targeting office and industrial buildings across the US.
Whatever fund structure new start-ups take though, Macke said it ultimately comes down to “a lot of shoe leather. You have to go out and talk to as many people as you can.
“The people who are going to have difficulty raising money today are going to be those who heavily invested in the last three years and have to explain to their investors why their investments are underwater. Investors are placing much greater emphasis on realising returns and not losing their principal.”