You are here: AURA/INVESTMENT APPROACH/Private Equity

Private Equity

 

Investment Philosophy / Process

   

The investment philosophy of the Private Equity Group's Real Estate Alternatives Program ( REAP ) is driven by:

   

  • Primary Market Research – AURA’s bottom-up approach is based on primary market research to evaluate the performance of a specific asset in its particular location and submarket.  AURA also devotes substantial resources to understanding top-down macro issues.  However, AURA believes the best decisions are made with local intelligence.
  • Emphasis on Fundamentals – REAP’s successful track record has been built on careful assessment of fundamentals affecting each asset, paired with a commitment to pursuing compelling strategies, skilled partners, and favorable terms for each REAP investment.
  • Commitment to Diversification – Low to negative correlations between real estate and natural resources sectors, as well as a healthy geographic and asset category mix within each sector, have created substantial diversification benefits for the REAP program.
  • IRR Focus – Since its inception in 2002, the REAP program has been focused on internal rate of return. 

 

Investment Strategy

Commingled Fund LP Interests

Numerous commingled fund investors are seeking to exit commitments in order to meet liquidity needs, relieve capital constraints, avoid future capital calls, or re-balance portfolios.  Meanwhile, prospective buyers face daunting underwriting hurdles such as limited property information, an inability to negotiate fund terms, and potential resistance from fund managers.  This has created an environment that strongly favors buyers who are able to overcome the barriers.  REAP is well positioned to do so.

Commingled Fund Sidecar Capital

Hundreds of real estate private equity funds formed during the past five to seven years are now facing significant duress as their loans approach maturity with a limited market in which to sell or refinance the assets.  Meanwhile, capital commitments to these funds have expired.  In response, many fund managers are seeking alternative sources of capital to bridge the gap between available sources and upcoming uses of capital.  Sometimes called “sidecar” or “supplemental” capital, these investments typically involve positions that are senior to (and offer a higher preferred return than) original equity in the fund.  Underwritten carefully, these situations represent opportunities for REAP to achieve outsized returns.

Joint Venture Recapitalizations

Many joint ventures need new capital.  While the underlying assets may be healthy, new capital may be required to meet approaching debt maturities or to replace a limited partner seeking to exit.  With a vast network of industry contacts, and in-house asset-level and financial structuring resources, AURA has both access to a robust pipeline of recapitalization opportunities and the requisite skills to evaluate and act on them.

General Partner Investments

During the real asset boom of the mid-2000s, an unprecedented number of commingled funds were launched.  In some cases, these funds now recognize that additional resources may be required for those funds to survive.  With its institutional sponsorship and previous funds’ history of investing in commingled funds, REAP is well suited to identify, evaluate, negotiate, and execute these opportunities.

Investment Tactics

Commingled Funds

Previous REAP funds have made commitments to more than 30 commingled funds. As a result, AEGON has distinct advantages over other prospective buyers, including:

    • Detailed information on the structure, assets, liabilities, people, history and prospects for each of these funds.
    • Direct lines of communication with other fund investors about their desire to sell, and in many cases rights of first offer and/or refusal from those investors planning to do so.
    • An established relationship with fund general partners, facilitating a smoother transaction.

Network of Joint Venture Operators

AURA has longstanding relationships throughout the real estate and natural resources industries.  Many are operators of joint ventures in need of recapitalization, and think of AURA as a source of intelligent capital.  REAP is poised to tap these relationships for investment opportunities.

In-House Underwriting & Monitoring

Since 2002, several thousand commingled fund and joint venture opportunities have been evaluated on behalf of previous REAP funds.  During this period, AURA developed a rigorous partnership due diligence process that draws on its extensive research, valuation, analytical, legal and accounting resources.  Consequently, REAP is well equipped to evaluate, negotiate and execute the complex combination of legal and financial rights and obligations assumed by a buyer of partnership interests.

© 2010 AEGON USA Realty Advisors, LLC. All Rights Reserved.