or alternative investments.Until recently, private equity real estate was only available to the largest financial institutions and investment banks. Today, private equity real estate is  quickly becoming one of the most exciting, reliable, and hands-off methods for discerning investors to generate returns in any economy – let alone the one we are currently faced with.   Everywhere you turn, it seems you’re likely going to lose money. 

The US economy is looking down the barrel of a long, tough journey back to stable ground. A decade of rock-bottom interest rates and escalating market euphoria, divorced from fundamentals, culminated in such extreme levels of cash printing by the Federal Reserve that inflation is threatening to eclipse the 10% mark. 

The stock market plummeted more than 20% this year with no sign of slowing down, bond yields aren’t even touching inflation, despite the Fed’s best effort to bolster rates up as fast as they can, and cash loses such value every day you can hardly think of it as a “safe bet” anymore. 

There’s always real estate, but that, too, has its challenges.  Becoming an owner brings the occasional nightmare tenants, unpredictable maintenance expenses, and increasingly higher mortgage rates coupled with sky-high pricing. That combination is deadly as it means the debt you’re taking on is not only expensive, you need a lot of it. 

Private equity real estate offers a unique opportunity for investors to gain lucrative returns without the downsides of individual real estate ownership. 

What is Private Equity Real Estate?

At its core, a REPE fund is money that’s been pooled amongst multiple investors and is subsequently managed by a professional investment fund. In turn, that investment fund allocates the money into varied real estate assets to generate returns for the investors, or limited partners (LPs). 

REPE firms’ offerings are typically only available to large-scale pension funds, accredited investors, or high-net-worth-individuals (HNWIs). In joining one, you’re accessing an elite class of sophisticated investors with a shared interest in exclusivity.

Why Invest in Private Equity Real Estate?

There are many exciting reasons to invest in REPE firms, not the least of which is that a REPE is a low-effort, high-return way of entering the real estate sector. You can bypass the misbehaving tenants, there is no property management firm bleeding your profit margins, and you won’t be getting any late-night calls when the water heater explodes. 

Here Are a Few Reasons Sophisticated Investors Choose REPE Funds:

Diversified Risk

REPE firms’ performance, including Kona Development’s, are not correlated to the market. This means the market’s increasingly poor performance has no effect on your investment with us – we aren’t tied to the daily volatility of the S&P 500, for example. 

In addition to diversifying market risk, REPE firms represent a diversification of real estate sector risk otherwise unavailable to everyone but the top 1% of HWNIs – large-scale commercial real estate (offices, hotels, resorts, etc) as opposed to the commonly available residential or small-lot real estate.

This means reliable, predictable, safe cash flows – there is much less risk in a hotel chain not paying rent than individual renters… not to mention these occupants typically expect rising rent costs so you can ensure those cash flows stay on pace with inflation rates.

Generational Wealth and Legacy

In addition to low risk, predictable cash inflow from rent and the occasional property liquidation, REPE firms offer individuals a chance at generational wealth, thereby leaving a financial legacy. 

This is unlike your typical Wall Street stock jockey who:

1. Has little appreciation of delayed gratification 
2. Measures success in quarters rather than years
3. Isn’t interested in formulating long-term strategies to maintain and grow your capital

REPE firms forecast out tens of years into the future – and why wouldn’t they? No one is making new land – the assets owned and managed by a REPE firm are guaranteed to increase in value over time when given a long enough horizon. This should give you the sense of security that your investment will be there for you when you most need it, whether in retirement or as a generous offering to grandchildren.  

Sound Investment

Depending on the strategy used, REPE firms typically enjoy consistent annual returns between 6% and 10% (excluding windfall-style, massive returns if the firm liquidates properties for a profit). Accessing dependable, diversified, and low-risk returns is every investor’s dream. And the reality is – REPE firms are one of the only feasible routes to that kind of opportunity. 

What Do I Need to Know Before Investing?  

The most important consideration when choosing a REPE firm is trust. Since REPE firms are so exclusive, you’re going to build a very close working relationship with your management team. At Kona Development Partners, trust and access are cornerstones of our mission. 

In your onboarding with Kona, you will be assigned your own sponsor and will work with them throughout your investing journey – you’ll even get their personal cell phone number. This level of access between client and firm is unheard of in traditional investment companies and rare even for most “exclusive” vehicles. No one at a hedge fund is going to give you that level of security.  

Aside from trusting your REPE firm, there are some unique features you’ll need to be familiar with.

What to Look For in a Private Equity Real Estate Investment

Structure of Investment

There are a few different ways that a REPE firm can structure your investment, and the minute differences between them can be hard to identify without a law degree. Generally, however, you’ll likely encounter one of these broad structural categories:

• Limited Liability Partnership (LLP): This describes a group of individuals split between management, the general partners (GPs), and investors/limited partners (LPs). 
• Limited Liability Corporations (LLC): These also allow access to corporate partners and already-pooled funds (pension, insurance, etc) – making LLCs eligible to access a much greater amount of capital, and ultimately generate greater returns.

LLPs and LLCs have a few benefits in common – they each provide direct, immediate, and intimate access to the firm’s operations by virtue of exclusivity and their commensurate smaller group of sophisticated, like-minded investors. Both also enjoy pass-through status, wherein the formation doesn’t pay federal tax directly. Instead, all profit, income, and capital gains flow directly to the investors and represent an opportunity to access special tax advantages like long-term capital gains tax rate, depreciation write-offs, etc.

The main difference is to the benefit of the LLC – access to increased institutional capital. It’s always a good idea for an individual investor to follow the smart money.

Strategic Options

There are many investment strategies that a REPE firm can elect to follow. They can also be blended to create a nearly infinite set of available opportunities – also ensuring a greater overall market for all REPE firms to participate in. Some basic strategies include:

Risk/Return Outlook

First, a REPE firm selects its overall risk/reward level:

• Core: Investment in proven, mature, and stable assets – think income equities as an analog like a reliable bond fund. As a function of less risk, core assets usually see 6-8% annual returns. 
• Core plus: This represents increased risk but can still be considered a generally safe investment (keeping with equities comparisons, Apple is core plus). Think a series of hotels in Austin, TX twenty years ago – you had a degree of guaranteed return based on it being the center of state government but took on risk in a largely unimproved area for the potential of greater future returns – which would have paid off well as Austin became one of the hottest destinations in America. In keeping with increased risk, core plus firms can expect 8-10% annual returns. 
• Value-add: Higher risk with much higher reward – the Tesla of real estate.  It could be something like a multi-business office park built in the 1970s with a busted water main and a parking lot full of potholes, but it’s right outside of Silicon Valley. It needs some TLC, work, and (ultimately) more upfront capital, but can provide a massive pay off. And all the work required to get it up to speed and ready to reach its full potential? That’s the REPE firm’s problem… you get to enjoy the fruits of their labor when the cash flows get serious.
• Opportunistic: These are the 10x funds. An opportunistic firm takes virgin territory and develops it into something spectacular. As you’ve probably guessed, this typically yields the greatest return. Our luxury development on the unspoiled Kona coastline represents that opportunity for reward. With a projected 2x target equity multiple and a 22% IRR, we’re beating the brakes off the dinosaur, legacy core funds and giving you the most benefit when investing your hard-earned capital. We’ve got you covered across all the heavy lifting areas of development – we’ve already broken ground on site improvement with heavy equipment arriving daily to build our dream.

Sector and Geography

A major focal point of an REPE firm is where they choose to invest – both industry/sector and physical/geographic location. You might see a firm invest in a small regional Midwestern coffee chain or office high rises in New York City, In our case, it’s a sprawling, luxury pre-development resort on the breathtaking Kona coast. No matter the region or industry, part of your due diligence is ensuring that the firm has the regional and sector expertise to manage your investment.  With nearly $1B in estate sales and a track record of successful projects in the region, Kona Development’s management has the proven experience you can trust.

Deal role

This is the delineation between GP and LP - active management or passive investment.

How to Find the Best Private Equity Real Estate Opportunities

Like we said, the number one requirement is finding a trustworthy firm and GPs – something Kona Development has in spades with unprecedented access to management and a proven track record of success. 

You’ll also want to think about your own interests. It’s like Warren Buffett said, “never invest in a business you cannot understand.” Are you confident that you can understand the nuances of office park management during your annual investor call? Or, are you more comfortable with learning what makes a luxury resort great (if you’ve taken even one vacation, you probably have some ideas on exactly what works and what doesn’t). 

Being excited about your investment is paramount – do you get more excited about an exclusive, relaxing experience along the Kona coast or the ins and outs of high-rise tenancy in Detroit? 

At its core, access is king – and deals like this, with a 2x target equity multiple and 22% IRR are once-in-a-lifetime opportunities. 

Long Term Risks and Outlook 

Market selloff is an omnipresent risk in all real estate investment vehicles, but it comes down to perspective. Are you looking for a quick buck tomorrow or a sustained, predictable cash flow over a number of years with a huge payoff at the end? Investment in Kona Development is an investment in something real and rare.

“Time is the friend of the wonderful business, the enemy of the mediocre.” – Warren Buffett

Leverage is also a risk in many REPE firms – overleveraging (assuming too much debt) in uncertain economic conditions is a recipe for disaster. Nearly all private market and real estate firms are heavily leveraged, especially early in their lifecycle. This increases total project and total investment risk if there are any changes to the timeline or if any unexpected projects or economic factors come into play. Kona Development’s zero-debt structure gives you flexibility as conditions change and ensures the ongoing viability of your investment. This means peace of mind for you and your family; the capital is backed by real estate and real property with no debt involved.

The final systemic risk of REPE firms is illiquidity. Many firms mandate a lock-out period in which you cannot sell your equity stake. Even after lock-out there isn’t always a market full of buyers and sellers so your investment can be difficult to value or offload. Kona Development manages valuation with constant, direct communication between us and our clients throughout each phase of the investment cycle. You will also have access to your private Investor Portal to get project updates, monitor investment performance, and receive quarterly/annual statements.

What about the future outlook? Real estate is one of the last bastions of safe, reliable returns as market volatility continues to wreak havoc with your net worth. Real estate is foundational, functional, and eternal. We can’t make any more land, so our goal at Kona Development is to put what land does exist to good (and profitable) use. 

What Does My Investment in Private Equity Real Estate with Kona Development Partners, LLC Look Like?

As an accredited investor with us, you gain access to a unique, bespoke, and personal experience to generate capital gains and protect your financial legacy. Our number one (and second, and third) priority at Kona Development is showing you the tools you need for financial success and the trust in us to use them. We have the entire first-stage process of investment down to a science to give you the smoothest, most enjoyable experience possible. Think of it us your personal concierge to REPE success. 

Step 1 – You review our website, see the opportunities, and schedule an introductory call with us to determine eligibility and answer questions. 

Step 2 – This is our first call together – the first of many. We discuss your suitability and eligibility for investment with one of our in-house expert investor consultants. This is your opportunity to get any remaining questions about the fund answered. This call is the key to our entire kingdom, and is vitally important – there are a lot of moving pieces to investments like this and we need to make sure we’re on the same page. 

Step 3 – If we’re a match, we schedule a follow-up 30-to-60-minute conference call. Before that we’ll send you our full investment details and memorandum as a readahead and then we’ll walk through line-by-line. You’ll leave this call knowing more about these types of investments than a post-graduate finance student and be able to quote legal jargon from memory – a testament to the level of attention to detail and care we put into every investor. 

Step 4 – This is your chance to digest the information we just covered – you drank from a firehose, so to speak, and you need time to mull it over and talk with your family. This is also your time to do due diligence, and nothing is off-limits. Review the materials provided, perform any background checks you want, research our company, consult with third party technical and fundamental investors’ analysis, etc. Whatever you need to be comfortable to take the next step with us. 

Step 5 – This is our final meeting before you’re officially a member of the team. And before you transfer any capital or sign any papers, you’ll meet your designated partner in this investing journey. If there any specific questions that haven’t been answered or any important points that you would like to go over, we’ll go over them for as long as you need – this is your time, and we’re here for you. We’ll also ask questions about your investment and risk tolerance, timeline, liquidity needs (we don’t want to prevent you from exploring other investing opportunities). 

This is also when you’ll get access to and a demonstration of our official investor portal and we’ll go over the electronic documentation process, i.e. your accreditation letter, capital transfer, signatures, etc.  

After all of this, you are a full legal partner and pro rata owner of 324 sprawling acres on the exotic Kona coast – and, more importantly, in position to profit when sales begin and cash starts flowing. 

Depending on your personal liquidity, the time from our discovery call together to becoming a full partner and equity owner can be as fast as five days – or months, if that’s what it takes you to be comfortable trusting us with your investment. 

Still Curious?

After you’re done looking over our site you can check out our YouTube channel while you’re waiting for our discovery call to get even more information. Here, our principal and vice president Andrew Rowland will walk you through all the details of private equity, infrastructure, marketing, and executing – a series of four videos that will prime you for our call. 

At its core, investment in Kona Development means investing in a new family – we’re here for you, day and night, and will succeed alongside you – not despite you. Is an investment with Kona Development Partners, LLC right for you? Request our guide and find out. We’re ready for you.