Nearly 20 years ago, The Yarmouth Group presented a year-end essay entitled “A New Paradigm.” This paper outlined their expectations and ideas for the evolution of the real estate commingled fund structure resulting from the dislocation of the institutional real estate investment market. At that time, there was much commentary in the industry press that “we will never let this happen again.” Yarmouth wrote that the industry needs to “…develop investment vehicles and fund structures that would survive, provide better transparency for investors, and an alignment of interest to help them avoid the worst excesses…” in an overheating market.
Fast forward to the current cycle, and we find that we have all somehow let this happen again. We are confronting new and complicated issues that appear insoluble, demonstrating similarities to the past, but with many more layers of complexity borne out of the financial market innovations of the past 20 years. Once again, there is a great deal of hand-wringing by talented and well-intentioned people in our industry as we confront a wide range of problem situations, while illiquidity reigns. Today’s dominant fund structure, typically one variant or another of the “private equity/private fund partnership” is being blamed by some in the industry for contributing to, and exacerbating, the challenges arising within the global real estate market.
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