Publications

- September 1, 2013: Vol. 25, Number 8

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Missteps: Private equity GPs have failed to evolve and are more often wrong than right when predicting real estate trends in Latin America

by James Anderson, David Young and Claudio Freitas

 

During the past 18 months, private equity real estate GPs in Latin America appear to have missed the mark in the identification and pursuit of opportunities throughout the region. During roadshows and public forums, GPs repeatedly called attention to numerous real estate trends that failed to materialize and grossly underestimated the role of local capital in meeting financing demand.

The low rate of new LP commitments suggests that the current real estate private equity model is no longer operating ahead of the curve and, consequently, that existing LP investors may experience chronic underinvestment for the duration of the current cycle and beyond. Worse yet, as GPs feel the pressure to invest, mistakes may be made in terms of the alignment of interests with local partners and capital investment decisions. This scenario is further complicated by the fact that the increasingly active role of local capital serves to make the operating structure of GPs more

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