Frequently Asked Questions

A private real estate fund pools capital from a limited group of investors to acquire and operate properties directly, while an REIT is a company, usually publicly traded, whose shares trade like a stock. Private funds are generally limited to accredited investors, carry higher minimums, and lock up capital for the fund term. In exchange, they are not re-priced daily by public markets and pass through tax benefits such as depreciation. REITs offer liquidity and low minimums but move with equity markets and must distribute at least 90 percent of taxable income as dividends.

Evaluate four things: track record across full market cycles, not just recent years or unrealized speculative returns; alignment, meaning how much of the sponsor's own capital is invested alongside yours; operating depth, including who manages the assets and how; and communication, which you can test before committing by asking a detailed underwriting question and judging the response. A sponsor's behavior in prior downturns is the most reliable predictor of behavior in the next one.

Multifamily has historically been the most resilient major commercial real estate sector in downturns because housing demand does not disappear when the economy contracts. During the 2008 to 2009 financial crisis, multifamily income remained positive; negative total returns came from cap rate expansion, not empty buildings. The same pattern held through the 2022 to 2024 interest rate correction, when values fell more than 25 percent from their 2022 peak yet national occupancy stayed above 94 percent while the market absorbed its largest supply wave since the 1980s. Resilience shows up in occupancy and cash flow, not immunity from repricing, which is why leverage, purchase basis, and reserves determine individual outcomes, and why sponsor discipline matters more in downturns than in expansions.

Ask how many full investment cycles the sponsor has completed and how actual results compared to projections. Ask how much of the sponsor's own capital is in the fund. Ask for the total fee load over the expected hold, not just the management fee. Ask what specific variables the underwriting stresses. And ask what went wrong on their most difficult deal and how they handled it. Sponsors with real track records answer these directly.

Co-investment means the sponsor commits its own capital to the same fund on the same terms as its investors, so the sponsor loses money if investors do. It is one of the strongest structural alignment signals in private real estate because it ties the sponsor's outcome to fund performance rather than to fees. When evaluating sponsors, ask whether co-investment is present in every fund or only selectively. Because Security Properties is employee owned, not only is the company invested alongside its investors, but the employees are as well, fostering even greater alignment.

A closed-end fund raises a fixed pool of capital during a defined fundraising period, invests it during an investment period of typically two to four years, holds and manages the assets, then sells them and returns capital and profits to investors. Total fund terms commonly run seven to ten years. Unlike an open-end fund, investors cannot redeem at will; capital is returned as assets are sold, which lets the manager sell strategically rather than to meet redemptions.

Most private real estate funds are offered under SEC Regulation D and are limited to accredited investors. An individual qualifies with a net worth above $1 million excluding a primary residence, or income above $200,000 in each of the last two years ($300,000 with a spouse), or certain professional licenses. Entities such as family offices, trusts, and institutions qualify under separate thresholds. Each fund's offering documents state its specific eligibility requirements.

Most private real estate funds are structured as partnerships, so income, losses, and depreciation pass through to investors rather than being taxed at the fund level. Investors receive a Schedule K-1 each year reporting their share. Depreciation often shelters a meaningful portion of distributed cash flow from current taxation, with taxes largely deferred until sale. Tax treatment varies by investor situation, so investors should consult their own tax advisors.

A value-add strategy acquires properties that are underperforming their potential, or presents an opportunity to improve the asset, then increases net operating income through targeted renovation, better management, and operational improvements. Returns come from both cash flow and the value created by higher income, rather than relying on market appreciation alone. The approach requires operating capability, not just capital, which is why sponsor execution matters more in value-add than in core strategies.

Distributions come from two sources: operating cash flow generated by the properties, typically paid quarterly, and proceeds from refinancings or sales, paid as those events occur. Cash is generally distributed pro rata based on invested capital, which includes any capital the sponsor has invested alongside its investors. The sponsor's share of excess profits, often called the promote, begins only after investors have received a full return of their capital plus a stated preferred return. Each fund's offering documents spell out the exact order in this distribution waterfall, and it is worth reading closely before investing.

LIHTC preservation means acquiring existing affordable housing built under the Low-Income Housing Tax Credit program and extending its affordability through renovation and new tax credit allocations, a process called resyndication.

LIHTC preservation attracts institutional capital because demand is deep and stable, government-supported financing reduces certain risks, and the strategy preserves housing stock that is expensive to replace. Specialized expertise in compliance and financing is the barrier to entry.

Supply-constrained markets limit how much new competition can be built, which supports occupancy and rent durability through cycles. Constraints come from geography, such as water and mountains around Seattle and the Bay Area, and from entitlement and permitting environments that slow new construction. Combined with employment bases anchored by technology, healthcare, and aerospace, these markets have historically produced more durable multifamily fundamentals than high-supply Sunbelt metros during downturns.

Ask which specific variables the sponsor stresses and by how much. A rigorous underwriting tests exit cap rate expansion, rent growth at or below zero, elevated vacancy, higher interest rates at refinance, expense inflation, and reserve adequacy, and shows the deal still protects capital under those conditions. Be cautious of without naming the variables. Specificity is the difference between discipline and marketing.