Management fee, carried interest and other economic terms of real estate funds

The jargon associated with investing in a private real estate fund is numerous. Given that an investor is signing a contract to invest in a fund, and the sponsor of the fund is promising to manage the fund in certain ways, it is not surprising that legalistic language has permeated the real estate industry. The purposes of this article are twofold. First, to provide clear definitions and insights into the main fund terms associated with most (but not all) private real estate funds. Second, to provide an overview of fund terms that have stood the test of time and to highlight those that are currently being debated in the industry. This second part involves a look at the alignment issue – how fund terms align the interests of the fund sponsor and investor.