Investment funds focused on real estate are a popular choice for investors looking to diversify their portfolios. These funds pool capital from a group of investors and use it to invest in various real estate opportunities. The goal is to generate income and capital gains for the investors through different investment strategies. Real Estate Funds can be structured as Limited Partnerships or Limited Liability Companies and typically have a larger size than REITs. They aim to raise significant capital, often $100 million or more, to purchase income-producing real estate assets. Leverage is often used to increase purchasing power and potential returns.

Investing in a real estate fund is not considered an interest in real estate, so it is not eligible for a 1031 exchange. However, it can still be a valuable addition to a diversified investment portfolio.

Real estate funds are illiquid investments offered to accredited investors or other suitable investors. Accreditation standards limit who can invest, similar to DSTs and other private placement offerings. For individuals, an accredited investor is someone with a net worth of $1,000,000 or more, excluding the equity in their primary residence. Alternatively, an individual can qualify with an income level of $200,000 ($300,000 if married) for the past two years, with an expectation of the same for the current year.

Real estate funds may use different strategies and property types, depending on the specific offering. A fund may focus on acquiring, developing, improving, or otherwise investing in real estate assets, but the strategy, assets, terms, fees, risks, and availability vary by offering.

General descriptions of fund strategies are educational examples only and are not a list of currently available Cornerstone offerings. Current availability and offering details must be confirmed in the applicable, current private placement memorandum and other approved offering materials before an investor considers a fund.

For a private real estate fund offering, investors should review the applicable private placement memorandum for the fund’s strategy, assets, fees, conflicts, risks, liquidity terms, and sponsor information. Review Cornerstone’s guide to risks of alternative investments for additional educational context. Fund interests may be illiquid, and there is no assurance that an investment will achieve its objectives or that an investor will be able to sell or redeem an interest.

How DST investment opportunities compare with real estate funds

A DST investment opportunity and a real estate fund use different structures. A DST may identify a specific property or portfolio for a 1031 exchange, while a real estate fund pools capital under a stated strategy and may hold assets selected over time. Both can be illiquid, and the current offering documents control eligibility, terms, fees, risks, and exit provisions. For a separate structure discussed in the context of real-estate ownership and tax planning, see Cornerstone’s UPREIT (721 Exchange) guide.

For an investor comparing these options, review:

  • What assets and strategy are identified? A DST may identify a specific replacement property or portfolio; a fund may provide broader discretion and may be a blind pool.
  • What liquidity limits apply? Confirm the expected hold period, any redemption or transfer limits, and whether an established secondary market exists. Private interests may be difficult or impossible to sell before an exit.
  • What do the offering materials disclose? Review the current private placement memorandum and related approved materials for the strategy, assets, financing, fees, conflicts, tax considerations, reporting, and risk disclosures.
  • Is the structure relevant to the investor’s objective? A DST may be considered for a 1031 exchange only when the specific structure and transaction meet applicable requirements. A real estate fund interest generally is not an interest in real estate for 1031 purposes. Investors should consult their own tax, legal, and financial professionals.

Cornerstone’s available offerings and terms change over time. The applicable current offering materials, not this educational overview, determine availability and terms. For a general overview of DST structure, read Cornerstone’s DST overview for 1031 exchanges. For any specific offering, review the applicable private placement memorandum and consult your own tax, legal, and financial professionals.

For any specific Cornerstone offering, the applicable private placement memorandum describes its terms, risks, fees, expenses, liquidity provisions, and eligibility requirements. Investors should review the applicable memorandum and consult their own tax, legal, and financial professionals before making an investment decision. Past performance, projected results, distributions, or appreciation are not guaranteed, and investors may lose some or all of their invested capital.

It’s important to note that real estate funds are blind pools, meaning investors may not know every asset the fund will purchase. Investors should thoroughly understand the fund’s strategy and criteria before making an investment decision. Reading through the Private Placement Memorandum (PPM) and studying the sponsor’s prior success can provide the necessary visibility and understanding to determine if a fund is a suitable investment.

Finally, the real estate fund offerings through Cornerstone are private placement investments accompanied by a private placement memorandum, but there are significant elements of risk that should be evaluated by the investor before purchase. Also, as there is no established secondary market for these interests, they should be considered illiquid investments. For information about applicable offering materials, contact Cornerstone.