Real estate separate account structures are utilized by institutional investors that are seeking further control over their real estate portfolio and more advantageous fee structures in comparison to those of traditional commingled funds. Preqin’s Real Estate Online service has shown that separate account structures are more commonly utilized by investors with greater assets under management due to the large commitment sizes necessary to form these relationships, along with the internal resources and knowledge necessary to invest, which may require more extensive due diligence and the ability of the investor to monitor and make decisions on an asset level. Among the investors considering or currently investing in real estate separate accounts, 79% have assets under management of at least $1bn and 42% have more than $10bn.
As shown in the chart above, asset managers are most likely to invest through real estate separate accounts, as they frequently look to deploy large portions of capital at a time. Smaller institutions, such as foundations and endowments, are less likely to create separate account structures as they hold lower assets under management on average and typically invest less per commitment.
Some of the largest real estate separate accounts created in recent years have come via partnerships with public pension funds. CPP Investment Board (CPPIB) has two separate accounts with Goodman, which, as of 2014, has $2bn in total equity committed to each vehicle. Both separate accounts, Goodman China Logistics Holding and Goodman North America Partnership, target industrial and logistical properties. Also in 2014, CalPERS added capital to its real estate separate account with GI Partners; TechCore, which will target data centres, internet gateways, corporate campuses for technology tenants and life science properties located in core metropolitan cities throughout the US. CalPERS will continue to implement its core separate account structure as it looks to cut down on fund manager relationships going forward.