Real Estate Private Equity Glossary: Key Terms for Analysts

Real Estate PE Glossary: Terms That Drive Deals

Real estate private equity is pooled capital used to buy, improve, finance, and sell property or property companies for a return. This field glossary is a working set of terms practitioners use to underwrite deals, structure vehicles, and close with certainty. Learn these concepts and you will see incentives and cash flows, not just labels.

This guide focuses on what actually moves returns, risk, and control. It cuts through jargon and highlights timing, cost, optics, and close certainty. A simple rule of thumb helps in practice: when incentives conflict, assume the conflict shows up by year two and price or paper accordingly.

How to use this glossary for faster, safer decisions

Treat each term as a lever that affects time, money, or control. If a definition changes funding timelines, widens cash leakage, or reduces enforcement options, mark it as a priority in your checklist. Then run a 10-minute calendar test: map when cash enters, when it can be trapped, when it must be reported, and when each party can act. If the timing map looks fragile, renegotiate or redesign the structure.

Fund and entity structures that set control and speed

General partner: The sponsor that controls the fund, commits capital, and earns fees and promote. Key-person and decision rights determine governance and execution speed.
Limited partner: The capital provider with priority return of capital and a preferred return. Consent rights around leverage and strategy drift anchor discipline and optics.
LP or LLC fund vehicle: Pass-throughs with limited liability. Choose based on tax elections, governance mechanics, and investor base to manage admin cost and flexibility.
Feeder and master-feeder: Route investor types to a master fund for scale. Offshore feeders fit tax-exempt and non-US LPs; onshore feeders fit taxable US investors.
SPV or SPE: Bankruptcy-remote entities that isolate asset and financing risk. Lender-required separateness covenants protect non-recourse outcomes.
Joint venture: Co-invest at asset or portfolio level with negotiated major decisions and exit mechanics. Align control with capital at risk to protect downside.
Closed-end vs open-end: Closed-end funds call and harvest; open-end funds run on NAV with subscriptions, redemptions, gates, and queues. Match structure to the business plan and liquidity sources.

For a primer on what real estate private equity is and how the model works day to day, start with a foundational overview. For decisions about structure and cost, this guide on structures, strategies, fees, and returns explains the main trade-offs clearly.

Capital and ownership mechanics that shape alignment

Capital commitments and calls: LPs fund to a cap; calls finance acquisitions, fees, and follow-ons. Late funding may incur penalties, so communicate early to prevent disruption.
Recycling and recall: Reuse interim proceeds within agreed limits. Track separately to prevent over-calls and avoid promote or clawback errors.
Preferred return: An annual compounded return paid before promote. Define basis, compounding, and catch-up precisely, since small drafting tweaks swing economics.
Carried interest and GP catch-up: Promote allocates upside above the hurdle; catch-up accelerates GP distributions to an agreed split. Model the catch-up to avoid surprises.
NAV and subscription facilities: NAV credit uses portfolio value, while a subscription credit facility is backed by LP commitments. Borrowing bases and concentration limits drive capacity and cost.

Acquisition and diligence terms that protect close certainty

Purchase and sale agreement: Defines price, conditions, reps, survival, caps, escrow, and MAC. Tie reps to insurance or escrow when diligence is constrained.
Title insurance and ALTA survey: Insure ownership and lien priority while surveys clear exceptions. Ensure legal descriptions match the lender’s collateral to avoid delays.
Environmental assessment: Phase I flags risks; Phase II tests. Price indemnities and consider environmental insurance for known issues.
Zoning and certificate of occupancy: Confirm use, density, and compliant operations. Non-conforming uses need either a cure plan or price protection.
Estoppels and SNDAs: Tenant confirmations and tenant-lender agreements. Prioritize top tenants by rent and secure SNDAs so value holds during ownership changes.

Underwriting metrics that anchor decision quality

GPR and economic occupancy: Start with gross potential rent, then apply vacancy and credit loss. Economic occupancy is the truer cash flow metric.
NOI: Revenue minus operating expenses before capex, debt service, and taxes. Remove one-offs and normalize operations to compare apples to apples.
Capex, TIs, and LCs: Separate maintenance from value-add. Include free rent, downtime, and the full leasing cost curve in absorption schedules.
Exit cap and IRR: Apply a spread to entry unless a clear catalyst justifies compression. Triangulate with debt yields and market cap spreads.
DSCR, debt yield, LTV: Use lender-defined NOI, and stress rates on floaters. Size conservatively when markets wobble.

Debt and financing terms that decide flexibility

Senior mortgage loan: First-lien financing with DSCR tests, cash sweeps, and transfer limits. Expect assignments of leases and rents and controls on subordinate debt.
Mezzanine loan: Pledge of equity in the property-owning entity. Intercreditor standstills and cure rights decide who controls in stress. See a primer on mezzanine financing in real estate.
Preferred equity: Priority distributions with negotiated remedies and sometimes springing control. Nail down cash traps, transfers, and buyout rights.
Construction loan: Draws fund a budget with interest reserve, rebalancing, and a completion guaranty. Pair with a GMP and lien waivers to control cost risk.
Interest-only period: Boosts cash flow but raises refinance risk. Size with the refi in mind, not the IO years.
Rate cap and hedges: ISDA-documented caps for floaters. Monitor counterparty credit, replacement tests, and cap maturity versus loan maturity.
Defeasance and yield maintenance: Prepayment protections that can be costly. Model breakage fees into exit timing and net proceeds.

Waterfalls and fee stack that reveal alignment

European vs American: European waterfalls return capital and hurdle fund-wide before promote. American can pay deal-by-deal with strong clawbacks. For a practical explainer, review how funds earn fee income and distributions.
Management fees: Often step down from commitments to invested capital after the investment period. Require clear offsets for transaction and monitoring fees.
Acquisition and asset management fees: One-off and ongoing oversight fees. Offset against fund fees to avoid double charging.
GP co-investment: Sponsor capital alongside LPs. Confirm whether it is cash, financed, or fee-laden to gauge true alignment.

Valuation and accounting that withstand audit

Fair value under ASC 820 or IFRS 13: Measure exit price in an orderly transaction. Calibrate to market trades, document methods, and disclose consistently.
Investment company accounting: ASC 946 funds mark portfolio at fair value with changes in earnings if criteria are met. Use NAV practical expedient where applicable.
Consolidation and VIE: ASC 810 and IFRS 10 determine control by power and economics, not votes. Many funds qualify as investment entities and mark subsidiaries at fair value.
Impairment and reporting: Long-lived assets use undiscounted cash flows under ASC 360, while investment companies apply ASC 820. Keep independent reviews and an audit trail.

Tax structuring choices that protect after-tax yield

Pass-throughs: Partnerships allocate income and loss to partners. Monitor state withholding and composite filings to avoid leakage.
Blockers and REITs: Block ECI or UBTI for certain investors; REITs can ease cross-border flows if tests are met. Compare REPE and REITs on returns and control.
Carried interest rules: US holding period rules and UK split treatment affect taxes. Draft provisions to track holding periods and capital accounts precisely.

Documentation and closing checklists that keep momentum

LPA, operating agreement, and PPM: Define economics, governance, reporting, risks, and MFN. Include key-person and removal rights with clear fee offsets.
Subscription agreement and KYC: Capture beneficial ownership, sanctions, and tax forms. FATCA or CRS self-certifications are standard.
JV agreement: Set major decisions, budgets, transfers, deadlocks, and exit tools. Drag, tag, and buy-sell terms matter when relationships strain.
Loan and security documents: Mortgage or deed of trust, assignment of leases and rents, UCC filings, guaranties, and environmental indemnities. Read transfer and change-of-control twice.
Intercreditor agreement: Senior, mezz, and preferred equity priorities with cures and standstills. Model remedies like it is 2009 to avoid surprises.

Regulatory and compliance that build LP confidence

Adviser registration and marketing: US advisers comply with custody, compliance, and advertising standards. Performance must be fair and balanced with records to match.
SEC private fund adviser rules: A 2023 package raised fee transparency, and a 2024 court vacated it. Many LPs still expect enhanced reporting, so keep the playbook.
AIFMD: EU rules on delegation, liquidity, and reporting. Private placement regimes vary by country, so confirm before marketing.
Beneficial ownership reporting: US Corporate Transparency Act requires BOI filings for many entities formed or registered in the US starting in 2024. Build BOI collection into onboarding.

Risk and edge cases that derail value if ignored

Affiliate or cross-fund trades: Require disclosure, market checks, LPAC approvals, and fairness opinions as appropriate.
Continuation vehicles: Use third-party bids and fairness opinions. Offer LP roll or cash with fees aligned to new risk.
Cash-control slippage: Reconcile lockboxes and covenants monthly. Small leaks become big problems when coverage dips.
Servicer dependency: CMBS special servicers work to pooling agreements, not sponsor timetables. Price delays and fees into workouts.
Data integrity and model risk: Tie rent rolls and ledgers to the general ledger, lock key cells, and peer-review models to reduce errors.

Comparisons that clarify the financing path

Preferred equity vs mezzanine: Preferred equity can sidestep mortgage transfer limits and act via governance; mezz has cleaner UCC enforcement. Choose based on intercreditor leverage and timelines.
NAV facility vs subscription line: NAV taps portfolio value with broader capacity; sub lines are cheaper and tied to LP credit quality. Use both only with clear disclosure and hard limits.
Open-end vs closed-end funds: Open-end offers liquidity but faces redemption pressure and valuation debates; closed-end fits value-add and development cycles.

Implementation tools that enforce discipline

IC memo: The binding decision record covering thesis, underwriting, risks, mitigants, sensitivity, debt, and JV terms. If it is not in the memo, it is not remembered.
Term sheet: Summarize economics and control early for JVs and financings. Identify redlines before counsel burns time.
Closing checklist and CPs: Assign owners, dates, and deliverables. Track opinions, insurance certificates, and entity formations with evidence folders.

Common pitfalls and kill tests to apply before signing

Recourse creep: If recourse extends beyond carve-outs and the guarantor cannot carry it under stress, stop and rework the risk ring-fence.
JV control gaps: If a JV lacks major decision rights over budget, financing, and sales proportional to capital, stop. Rebalance control to match risk.
Cash leakage: If cash can leak before DSCR or hedge tests are met, stop. You will strand liquidity when coverage moves.
Open-end liquidity mismatch: If redemptions can exceed liquidity sources within two quarters under base assumptions, stop and redesign the liquidity program.
Tax leakage for non-US and tax-exempt LPs: If you cannot shield from UBTI or ECI efficiently, use REITs or blockers before fundraising.
Exit cap optimism: If underwriting assumes cap rate compression without a catalyst, rebase to flat or wider exits and retest viability.
Weak clawback: If the promote lacks a robust clawback and escrow, stop. Interim promote becomes uncollectible at wind-up.

Closeout discipline

Archive everything by index, version, Q&A, users, and full audit logs. Hash the archive, set retention, obtain vendor deletion certificates, and remember legal holds override deletion.

Closing Thoughts

Use this glossary as a deal map. Start with structure and control, test cash timing, and model enforcement under stress. When in doubt, price friction, fund liquidity, and paperwork risk into the bid. The investor who sees these mechanics early earns cleaner closes and better realized returns.