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The same peculiarities of real estate investment also require that a sponsor heavily regulate the cash flows into and out of a fund to manage the fund's liquidity and valuation.
A typical real estate fund will raise funds through subscriptions made by investors in one or more closings of limited partnership interests (or limited liability company membership interests) over a limited period, once the sponsor identifies an investment strategy and makes his business case to potential investors through the offering materials (e.g., the "Private Placement Memorandum" or PPM). The PPM is often presented to potential investors at meetings and presentations – called "road shows," subject to the applicable requirements of the securities law (e.g. The first one or two investors often get preferential treatment and are called "seed investors." Investors coming in through later closings typically pay an interest factor to compensate the early birds for footing the bill for the first investments.
Generally, a fund will pay investors, first, a preferred return on the invested capital, then a return of capital, and then divide the remaining funds between the investors and the sponsor.
The sponsor's share of these remaining proceeds is often called "carry" or "promote," which sometimes is subject to a "holdback" or "clawback" obligation to ensure appropriate promote sharing based on the economic performance of a fund during its entire life cycle.
New investors will not be allowed into the fund after the investment-reinvestment period has ended.
Investors will not fund all of their capital commitments in their subscriptions upfront.
For emerging fund managers in this space, the structuring legalese can be confusing; but it is important.The first 3 years will be its investment-reinvestment period, during which it intends to acquire the 30 Dunkin Donuts properties. business entity that acts like a mutual fund with a real estate concentration. When it does, just like a mutual fund, it will be treated as a corporation that does not pay corporate income tax on its distributed income.