New commingled funds continue to close amid historically sluggish capital commitments, thanks in large part to the concessions managers are making to investors: management fees falling toward 1.5 percent or even 1.0 percent; incentive compensation structures adjusting to eliminate overfunded carried interest; and manager and fund termination decisions tilting toward majority LP control.

John Kuhl and Amy Wells, partners at law firm Cox Castle & Nicholson, answer this month’s reader’s question: “Current economic conditions are prompting many real estate fund sponsors to ask investors to approve modifications to fund terms. Although the requests vary, what are some common issues investors should consider when evaluating the fund sponsor’s proposed changes? What should investors ask for in return?”

The recessionary environment that persists in all four corners of the United States through the first quarter of 2009 has set the stage for what will be a record year of contraction for the domestic lodging industry. According to Smith Travel Research (STR), the average U.S. hotel achieved an occupancy level of 51.4 percent through first quarter 2009, a 10.9 percent decline compared with the 2008 level of 57.7 percent. The ill effects of these weak demand conditions are being amplified by the scale of new hotel openings, which represented a 3.2 percent net increase in available supply in the first quarter. Inventory levels will likely grow by 2.6 percent for full year 2009, well above the 20-year average of 1.9 percent as reported by STR.