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Private Equity

Private Equity

Private-equity firms act as an investment vehicles for institutions and wealthy individuals looking to gain an ownership stake in a range of different properties and companies. They commonly create private-equity
acquisition funds and treat them like private companies with investors acting as shareholders.

Initially focused on the top markets, private equity is now moving into some secondary and tertiary areas as prime inventory dries up. “Buyers, including the private-equity funds, have had to think beyond the major gateway cities, where they may not have had the same comfort level,” said Phillip Gordon, a partner in the law firm of Perkins Coie, LLP, during a panel at NYU International Hospitality Industry Investment Conference last May.

Private-equity firms typically have a hold period for their funds, defining out how many years they expect to retain each acquired asset before selling it or taking it public. A typical hold period will be six or seven years.

“Up until now the action has been on buying established properties,” Phillip Gordon of Perkins Coie said at the same NYU panel. “But the pricing has risen to a point where—combined with cheap capital—it’s become difficult for private equity players to get the returns they want. I suspect that side of it will be slow until there’s a big disruption in the capital markets like increasing
interest rates.”

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