A High-Level Overview of Real Estate Investment Structures

This reference guide provides an overview of common real estate investment structures. Understanding these distinct vehicles is a fundamental component of real estate investing and portfolio management.

This content is for informational and educational purposes only and does not constitute investment, legal, or tax advice.

Fund

A real estate fund is a pooled investment vehicle that raises capital from multiple investors to acquire, manage, and sell real estate assets. Funds are typically structured around a defined investment strategy (such as purchasing and renovating apartment communities or acquiring commercial properties) and invested over a set period. Investors commit capital to the fund manager, relying on the manager's expertise to source and execute deals across multiple properties. Unlike a syndication, investors in a fund are generally not evaluating pre-identified assets at the time of investment. Instead, they are evaluating the manager's strategy, track record, and ability to execute.

REIT (Real Estate Investment Trust)

A REIT is a corporate entity that owns, operates, or finances income-producing real estate. Congress established the REIT structure in 1960 to provide individual investors access to large-scale, diversified real estate portfolios. REITs pool capital from numerous investors and are legally required to distribute at least 90% of their taxable income to shareholders annually in the form of dividends.

While publicly traded REITs listed on stock exchanges are the most widely recognized form, REITs also exist as non-traded vehicles. Non-traded REITs are not listed on a public exchange, meaning shares are not freely tradable and liquidity is limited compared to their publicly traded counterparts. Private REITs are neither registered with the SEC nor traded on an exchange, and are generally available only to accredited investors (individuals who meet certain income or net worth thresholds defined by the SEC). Private and non-traded REITs are typically structured so that the sponsor raises capital first and then acquires assets over time according to a stated investment strategy, rather than raising capital for a specific, pre-identified property.

REITs can also be categorized by the nature of their holdings. Equity REITs own and operate income-producing properties. Mortgage REITs (mREITs) invest in real estate debt, such as mortgages and mortgage-backed securities. Hybrid REITs hold a combination of both property assets and real estate debt.

Single-Asset Syndication

In a single-asset syndication, investors pool capital to acquire one specific property. The defining characteristic of this structure is asset-level transparency: investors can evaluate the specific building being acquired, its geographic market, the sponsor's business plan, and the projected financial performance before committing capital. The financial outcome of the investment is directly tied to the operational execution and market conditions affecting that individual asset.

Portfolio Syndication

A portfolio syndication is similar to a single-asset syndication, except that it pools capital from investors to acquire a group of properties in a single transaction. Investors can evaluate each specific asset being acquired before committing capital, maintaining the transparency of a single-asset syndication while gaining built-in diversification across multiple properties. A sponsor may structure a deal as a portfolio syndication when acquiring a package of assets from a single seller, when assembling complementary properties across a submarket, or when the investment thesis depends on operating several assets together as a unified portfolio.

Fund of Funds

A Fund of Funds (FoF) is an investment vehicle that allocates capital into a portfolio of other real estate funds or syndications in a Limited Partner position, meaning that they are not a lead sponsor or co-sponsor. The FoF manager's role is to evaluate, select, and allocate capital across multiple underlying fund managers or syndicators. This structure provides broad diversification across different strategies, asset classes, geographic regions, and management teams through a single investment. Because investors are paying fees at both the FoF level and the underlying fund level, this structure typically carries an additional layer of management costs.

DST (Delaware Statutory Trust)

A DST is a legal entity formed under Delaware law that holds title to real estate assets. DSTs are most commonly utilized by investors executing a 1031 exchange. A 1031 exchange, named for Section 1031 of the Internal Revenue Code, allows an investor to defer capital gains taxes by reinvesting the proceeds from the sale of one investment property into another qualifying property. IRS Revenue Ruling 2004-86 established that an investor's ownership interest in a properly structured DST qualifies as replacement property for this purpose, and investors purchase a fractional ownership interest in one or more properties held by the trust.

The structure is fully passive for the investor. The sponsor, acting as trustee, retains complete responsibility for all property management, operational decisions, and day-to-day administration. Investors have no voting rights or decision-making authority over the assets. DSTs vary significantly in asset type, property quality, portfolio size, and minimum investment requirements. Unlike TIC structures, there is no regulatory cap on the number of investors in a DST.

TIC (Tenancy in Common)

A TIC is a co-ownership structure in which multiple investors each hold a direct ownership stake in a property, with each investor appearing individually on the title. In private real estate, sponsors commonly use TIC structures to accommodate investors who are completing a 1031 exchange. Because a TIC interest is treated as direct ownership of real property rather than an interest in a partnership or entity, it can qualify as replacement property under Section 1031. IRS Revenue Procedure 2002-22 defines the conditions under which the IRS will recognize this treatment. These conditions are known as a "safe harbor," meaning that TIC arrangements meeting them can proceed with confidence in their tax status.

Under these guidelines, a TIC arrangement may include no more than 35 co-owners. Co-owners retain voting rights over major property decisions, and the Revenue Procedure requires unanimous consent for actions such as entering into or renegotiating leases, securing or modifying financing, and approving a sale of the property. The sponsor or a property manager typically handles day-to-day operations under a management agreement, which co-owners must also unanimously approve. This agreement is generally limited to a one-year renewable term.

Recapitalization

In private real estate, a recapitalization involves restructuring how an existing asset is financed. Every property is supported by a capital stack, which is the combination of debt (borrowed funds) and equity (invested capital) used to finance the deal. A sponsor may restructure this capital stack for a number of reasons: to bring in new equity investors who replace or join the original investor base, to refinance existing debt on different terms, or to do both at once. These transactions commonly occur after a sponsor has executed all or part of the original business plan and the property has an established operating track record.

In an equity recapitalization, the sponsor typically retains an ownership stake and continues managing the property while new investors enter the deal at its current stage. New investors gain the ability to evaluate an asset based on actual performance data rather than projections alone. For original investors, a recapitalization can provide an opportunity to receive a return of capital without requiring a full sale of the property.