Goodwin Procter put together a great piece on Strategies for Responding to Liquidity Needs of Investors in Real Estate Funds.
As a result of the current economic downturn and global economic credit crisis, some investors find themselves over-allocated to investments in private real estate funds because their private real estate investments have not been written down in value to the same degree as their public investments (the so-called “denominator effect”). In addition, many large pension plans, foundations and endowments have suffered well-publicized losses in the public equity markets.
These pressures facing such investors are compounded by the fact that the virtual shutdown of the credit markets has dramatically reduced the volume of real estate transactions in the marketplace, which in turn has reduced the amount of distributions that real estate funds are able to make to their investors. Despite these liquidity constraints on investors, the current reduction in cash flows and sale proceeds means that many real estate funds may encounter an even greater than expected need to call capital from investors in the near term in order to fund operating costs and debt service, and to complete development or capital improvement projects.
