Coffee Can Investing: the low risk road to stupendous wealth

by Saurabh Mukherjea

Real Estate Private Equity funds give funds to developers in exchange for equity. The funding (and hence the equity) could be at the developer’s holding company level or for specific projects. When it is for a specific project, it is also known as SPV (Special Purpose Vehicle) funding. An SPV is typically a company that the developer incorporates only for execution of one or more specific projects. Since it is an equity investment, the investor gets full participation in the SPV’s/Fund’s profits. However, the flip side is that the equity investor has to bear the downside as well. While prices usually don’t crash, projects typically get delayed. This increase in the duration of the project means that the equity investor’s return plummets (as the return comes much later than the investor expected).