Private Real Estate: How Liquid Is Your Investment? Part 1 of 2

One of the questions we hear most often from investors is the following:

“How easy is it to get my money out of the fund? How liquid is it?”

In our experience, this question isn’t theoretical. Many investors have experienced periods when open-ended real estate equity funds slowed redemptions, introduced queues, or gated withdrawals altogether. Those experiences tend to sharpen the focus on liquidity—particularly in today’s market.

What is not always understood is that liquidity works differently for real estate equity funds compared to debt funds (i.e. Bridger Fund), particularly when markets are under stress. Open-ended real estate equity funds generally tie liquidity to the sale or refinancing of properties, which can be difficult in stressed markets. On the other hand, debt funds, especially those holding shorter-term duration loans, rely on loan repayments and fund rules, offering more predictable liquidity.

Unlike stocks or bonds, private real estate funds don’t let you buy and sell every day. Instead, liquidity comes from how the fund is structured—using features such as advance notice for withdrawals, limits on how much can be withdrawn at once, and pacing rules to ensure everyone is treated fairly.

How well these rules work depends on the types of investments the fund holds.

Why Equity Funds Have Liquidity Challenges

Equity real estate funds usually get cash by selling properties, refinancing, or recapitalizing. In strong markets, it’s easy to find buyers and get good prices. But when markets are shaky, three main problems come up:

• It’s harder to find buyers willing to pay acceptable prices.
• Property values can change slowly, since they’re based on periodic appraisals that can lag current values.
• Many investors may want to take money out right when it becomes toughest to sell properties.

When this happens, fund managers often have to choose between selling properties sooner than planned or slowing withdrawals to protect remaining investors. This isn’t a mistake, it is a structure built into the fund for investor protection. This is why the PPMs for these offerings include numerous disclosures about how illiquid these investments can be during times of stress.

How Debt Funds Are Different

Private real estate debt funds, such as Bridger Fund, generate cash differently. Instead of needing to sell property, debt funds get money from the following sources:

• Interest payments from loans
• Principal payments when loans are paid off or refinanced
• New investor dollars

Loan maturities provide clear dates when funds are repaid, and shorter-term loans mean cash is returned more frequently.

Think of it this way: for equity funds, liquidity usually means finding a buyer. For debt funds, it’s more about waiting for loans to be paid off.

This difference is especially important during tough market times.

The Real Question for Investors

Instead of asking if a fund is “liquid” or “illiquid,” it’s better to ask: How does the fund make cash available for withdrawals, and what happens if lots of investors want their money back at the same time?

In our second blog post on this topic happening next week, we’ll explain how Bridger Fund is designed to answer the question “how liquid is it” by focusing on loan duration, portfolio mix, and a clear, rule-based withdrawal process.

If you have questions or would like to discuss further in the meantime, we’re always here to help.