What is real estate private equity

Real estate expertise from A-Z

THE ONLINE LEXICON OF THE REAL ESTATE SECTOR FROM A-Z

Private equity funds emerged in the USA and Great Britain in the 1970s. Through the use of equity, companies that are temporarily taken off the stock exchange or are not listed there (private) are taken over and rebuilt. In the broadest sense, this is risk capital, comparable to so-called venture capital for young companies. The funds become fully liable shareholders or co-partners. This gives you the right to have a say and influence over the management of the company. After four to eight years, the company is listed on the stock exchange, sold to another company or to other private equity funds with profits that are a multiple of the originally invested capital. Private equity funds have been active in Germany since the mid-1990s.

The newly launched fund is initially fed from the capital of pension funds, banks or insurance companies and thus acquires the majority in a company, one third financed with the equity of the fund and two thirds through bank loans. The loans are repaid from the proceeds of the purchased companies, the sale of the company or from the IPO. Fund investors expect a return of between 20 and 40 percent per year. Critics complain that the companies bought pay most of the debt incurred for the purchase themselves. Politicians sometimes referred to such companies as locusts. Proponents of the private equity sector speak of "promoting companies to the elite where only the best have a place". In the positive case, the management of the purchased company is involved in the renovation and the company receives a new opportunity with this form of equity financing.
Last updated: December 31, 2020
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