Entity investing: Owning a piece of the pie
Over the years, real estate operating companies have developed an unorthodox funding model. Rather than having a single pool of capital that ﬂows down to ventures from the top — which is how nearly every other company in the world is set up — each asset or group of assets is positioned as a separate company or LLC, and required to raise its own ﬁnancing. The reasoning behind this structure is fairly simple: Real estate investors want to invest in real estate, not corporate entities. They typically want to know exactly what they are investing in, so they can slot each investment appropriately in their allocation models. Investing in a corporate entity is the private-equity portfolio’s job, not the real estate portfolio’s.
But that bright line between real estate investing and private-equity investing is beginning to blur. Led by the country’s largest pension funds, real estate investors are beginning to see the advantages of investing in the operating company its