Key Takeaways
- • RSM US outlines a step-by-step framework for emerging managers launching real estate funds, from building a private placement memorandum (PPM) through closing.
- • Management fees typically run about 1.5% of capital committed or invested, with carried interest paid at the back end as assets are sold.
- • RSM's Scott Helberg says more limited partners are open to second- and third-tier real estate markets such as Nashville and Austin.
- • Investors increasingly expect managers to commit their own capital, and rising money-market yields of 5% to 6% raise the bar for fund-level returns.
- • Strong ESG governance and a risk management framework are increasingly required, particularly for managers seeking capital in Europe.
Summary
RSM US has published a guide for emerging managers launching real estate funds, centered on building a sound foundation and a flexible strategy. According to the article, the first step is drafting a clear private placement memorandum that sets out the fund's strategy and competitive advantage. Managers are advised to monitor and reassess that strategy over time so it remains consistent with what was presented to investors, and to stay flexible on capital deployment and exit timing as market conditions evolve.
On structure, the article identifies two primary economic considerations: the management fee, typically about 1.5% of committed or invested capital, and carried interest, which is received at the back end as assets are sold. Managers should also understand their investor base, particularly tax positions. Tax-exempt investors are generally less interested in tax credits, while high-net-worth investors may value tools such as accelerated depreciation, low-income housing credits or sustainability credits.
RSM tax partner Scott Helberg is quoted saying that "more limited partners are open to investing in second-tier and third-tier emerging real estate markets (i.e., Nashville and Austin)." The article notes that new managers often begin with deal-by-deal arrangements to build a track record before moving to fund-level strategies, and that investors look for demonstrable expertise in particular markets or sectors.
The article also stresses institutional-grade infrastructure, including experienced fund administrators, attorneys, accountants, internal compliance teams and IT consultants. On governance, it highlights ESG integration and cites Helberg on California rules that could require further reporting. Managers raising capital in Europe need ESG resources in place to be considered. The piece adds that some investors will walk away from private companies that lag on diversity and inclusion. Finally, RSM cautions that with money-market rates at 5% to 6%, investors may be less willing to back a manager targeting 7% to 8% returns, and that managers are often expected to invest their own capital to demonstrate commitment.
On structure, the article identifies two primary economic considerations: the management fee, typically about 1.5% of committed or invested capital, and carried interest, which is received at the back end as assets are sold. Managers should also understand their investor base, particularly tax positions. Tax-exempt investors are generally less interested in tax credits, while high-net-worth investors may value tools such as accelerated depreciation, low-income housing credits or sustainability credits.
RSM tax partner Scott Helberg is quoted saying that "more limited partners are open to investing in second-tier and third-tier emerging real estate markets (i.e., Nashville and Austin)." The article notes that new managers often begin with deal-by-deal arrangements to build a track record before moving to fund-level strategies, and that investors look for demonstrable expertise in particular markets or sectors.
The article also stresses institutional-grade infrastructure, including experienced fund administrators, attorneys, accountants, internal compliance teams and IT consultants. On governance, it highlights ESG integration and cites Helberg on California rules that could require further reporting. Managers raising capital in Europe need ESG resources in place to be considered. The piece adds that some investors will walk away from private companies that lag on diversity and inclusion. Finally, RSM cautions that with money-market rates at 5% to 6%, investors may be less willing to back a manager targeting 7% to 8% returns, and that managers are often expected to invest their own capital to demonstrate commitment.
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