Real estate funds – what are they?

A real estate fund is an investment vehicle which allows investors to pool capital to gain exposure to property without buying and managing individual assets themselves. The fund is managed by a sponsor or investment manager, who takes responsibility for identifying acquisitions, arranging financing, overseeing asset management, and the disposal of investments.

What is a real estate fund?

A real estate fund is a form of investment vehicle created by a sponsor/manager to pool cash investments from multiple investors and then apply such sums in the acquisition of assets that are within the parameters of a specified strategy, with the assets acquired being held for a period and then disposed of, with a view to generating returns for investor from rental income and capital gains.

There are broadly three categories of fund – closed-ended, open-ended and listed. Each fund will follow an investment strategy for the investments they make. These strategies could be core, core plus, value-add or opportunistic. Core funds tend to offer stability whilst value add and opportunistic funds tend to be riskier but with a higher upside. These different strategies allow investors to vary their return and risk levels.

A fund will usually focus on a particular sector such as stabilised income-producing assets, development projects, distressed acquisitions, real estate debt, logistics, student accommodation, healthcare and data centres. The strategy could be further narrowed by focussing on a particular country or region. The individuals working on the fund will often have expertise in the sector and location the focus of the fund. An investment in the fund is as much a vote in favour of their abilities as it is in the assets being bought.

Who participates in real estate funds?

Investors in real estate funds are typically pension funds, sovereign wealth funds, insurance companies, family offices and high-net-worth individuals. A fund gives investors access to assets, sectors, and geographies that would be difficult or impossible for them to otherwise get. At the same time they can lean on specialist managers for sourcing, managing, financing, and disposing the relevant assets.

Sometimes the sponsor will engage a placement agent to help them source investors. Fund managers will also engage administrators to deal with various important reporting functions and accounting obligations of the fund.

Open-ended funds vs Close-ended funds

The closed-ended fund model is often used in the private equity world. Investors commit capital for a fixed term. The investment manager invests during a defined investment period, then manages and disposes of the portfolio. This allows for a clear strategy with a defined exit timeline and is well suited to real estate holdings. However, investors in this type of fund have little or no liquidity . Crucially, the very time (i.e. at the end of the fixed term) when there is pressure to sell may be the wrong time to do that. For example, closed-ended funds formed in 2010, soon after the 2008 GFC, with a 10 to 12 year term would have been under pressure to sell assets or restructure just as they were coming out of the challenging COVID period.

Open-ended funds allow for continuing subscriptions and redemptions, subject to dealing mechanics and liquidity controls. They are often used for stabilised, income-oriented real estate. They offer greater liquidity than a closed-ended fund and with no fixed end date, assets can be held under a long term strategy. However, the challenge often faced by these funds is that their main benefit, liquidity, is offset by the asset the subject of the fund, real estate, being amongst the most illiquid. This leads to redemption gates and suspensions during stressful periods such as in the aftermath of the September 2022 mini budget. There can also be contentious issues for managers around valuation timing and fairness of dealing.

What are the common real estate fund structures?

The most common fund structure for private closed ended funds is a limited partnership. This is, in many jurisdictions, a tax transparent structure and is flexible and familiar to investors. Typically, there will be special purpose vehicles (SPVs) that will hold assets.

Other structures used include unit trusts and REITs.

What are the fund documents and what do they contain?

The main fund document, assuming a limited partnership structure, is a limited partnership agreement (LPA). An investor will adhere to the terms of the LPA in the subscription document that it signs when committing capital to the fund. The LPA will set out the key terms for the operation of the fund, including:

• the investment objective and strategy of the fund and investment restrictions, such as concentration and leverage limits;
• procedures for capital calls, notice periods, permitted uses of called capital, and consequences of late funding;
• consequences for when an investor fails to fund, e.g. default interest, suspension of voting rights, forced sale of the interest at a discount, dilution, or forfeiture mechanisms;
• powers of the general partner, delegation to the investment manager or adviser, decision-making authority, and limitations on limited partner involvement to preserve limited liability;
• key person provisions to deal with what happens if specified senior individuals cease to devote sufficient time to the fund. Typically there is a suspension of the investment period until investor or advisory committee approval is obtained;
• rights of investors to remove the GP or terminate the manager for cause, and sometimes without cause by supermajority vote, often with economic consequences depending on the trigger;
• what fees are payable and how and when distributions carried interest are paid;
• investor advisory committee (IAC) terms; and
• provisions relating to termination and winding up.

The subscription agreement will set out the formal application of a person to become an investor in the fund and its acceptance by the General Partner. This document will contain multiple representations and warranties, mostly by the investor, including as to its status from a regulatory and AML perspective.

Some investors will have a side letter setting specific provisions to apply to them as an investor notwithstanding the provisions in the LPA. These may include fee breaks; a seat on the IAC, co-investment rights and bespoke reporting obligations on the manager.

Conclusion and our experience

Private real estate funds raised an estimated $222.2 billion in 2025, an increase of 29% on the previous year, so are a hugely significant part of the real estate investment world. They are part of a complex and rapidly evolving sector attracting capital from some of the largest and most sophisticated investors.

Burges Salmon’s Corporate Real Estate and Funds teams have experience in acting on the establishment of and investment into real estate funds.

With a team of Built Environment lawyers qualified across England, Wales, Scotland and Northern Ireland, we support clients on real estate matters across jurisdictions and project types. Our Corporate Real Estate team works closely with colleagues in construction, planning, tax, litigation, environmental and finance to provide integrated support throughout the lifecycle of real estate assets.

We have experience across many sectors including logistics, hospitality, office, residential (including build-to-rent and student accommodation), and large-scale regeneration schemes.

If you would like to explore any of the topics discussed above, please contact Jonathan Cantor (Partner, Corporate and M&A).