For years, I have been complaining about the structure of the real estate investment industry.
Large managers keep getting larger. Real estate private equity (REPE) firms now provide equity, debt and mezzanine; acquire operating partners; build “specialist platforms”; and provide secondaries. They represent a large majority of total funds raised during the past 15 years. And continuation vehicles keep yet more capital under management, raising switching costs for investors.
Meanwhile, emerging managers and first-time funds can quite often outperform megafunds. At this point, you can probably guess where I thought this column was going. My hypothesis was simple: The current heavily oligopolistic and vertically integrated industry has to be flawed. Then I did some research. Annoyingly, the answer is more complicated.
Consider how the industry worked around 2006. Banks did almost everything. They ran opportunistic funds using their own capital, managed third-pa
