What Is Private Equity?

When Investors Want More Than a Coupon

Over the last few years, investors have seen almost everything move at once:
Tech and AI names can swing 5–10% in a day.
Bond prices jump when interest rate expectations shift.
Even “safe” assets don’t always feel safe.

At the same time, many investors are looking beyond simple yield. They want to know:

“How do I actually build long-term wealth — not just collect interest?”

One of the primary tools for doing that in real estate is private equity.

At Fort + Home, we use private equity alongside bank debt and private debt to finance and own real housing projects — including attainable housing communities in the Rockies. This article explains what private real estate equity is, how it differs from debt and public REITs, where it sits in the capital stack, and how equity investors actually earn returns.

This is an educational overview, not a recommendation or an offer of securities.

What Private Real Estate Equity Actually Is

Most investors are familiar with the idea of a mortgage or a loan. That’s debt — the lender receives interest and gets repaid first. Private real estate equity is different. At its core: Private real estate equity is when you are an owner.

You provide capital to acquire, build, or improve a property or portfolio. In return, you receive:

• An ownership interest (membership units, LP interests, or shares)
• A share of cash flow after expenses and debt service
• A share of the value when the asset is refinanced or sold
• The potential to benefit from tax advantages available to real estate owners

You are not just lending money at a fixed rate. You are taking an ownership stake in the underlying asset. Practically, that means:

• You participate in profits and appreciation
• You accept that you are last in line in the capital stack if something goes wrong
• Your outcome is tied to the performance of the property and the operator over time

A simple way to think about it:

• Debt = you hold the mortgage.
• Equity = you own the building.

Debt collects interest based on a contract. Equity participates in whatever value is created above all obligations.

Private Equity vs. Debt vs. Public REITs

To understand where private equity fits, it helps to compare three familiar buckets:

• Debt (bank or private lenders)
• Private real estate equity
• Public REITs and real-estate-related stocks

Debt

• Earns a defined interest rate
• Has a fixed repayment schedule
• Sits higher in the capital stack
• Gets paid before equity owners receive any profits

It’s designed for contractual income, not unlimited upside.

Private Real Estate Equity

• Has no guaranteed coupon
• Earns cash flow after expenses and debt service
• Participates in appreciation and principal paydown over time
• Sits lower in the capital stack — it takes losses first, but also captures the upside

Returns are driven by:

• How well the property is bought
• How well it’s built or improved
• How well it’s operated over years, not days

Public REITs

• Are publicly traded on stock exchanges
• Offer daily liquidity
• Combine real estate fundamentals with stock market sentiment and index flows

You can buy and sell them quickly — but day-to-day pricing can reflect emotions and headlines as much as underlying property cash flows.

Putting It Together

In simple terms:

• Debt → More priority, less upside, more predictability
• Private Equity → Less priority, more upside, less liquidity
• Public REITs → Equity exposure plus daily liquidity and market volatility

Private real estate equity focuses on the asset itself and the business plan, usually with multi-year hold periods and far less noise from daily trading.

Who Really Captures the Upside?

Most people intuitively understand interest on a loan. Far fewer think carefully about who captures the upside in a real estate deal.

Here’s a simplified picture of a stabilized property:

1. Tenants pay rent
2. The property pays:
   • Operating expenses (taxes, insurance, maintenance, management)
   • Debt service (interest and principal on loans)
3. Whatever is left — Net Cash Flow — belongs to the equity owners

Over time, equity can benefit from:

• Rent growth
• Expense control and operational improvements
• Loan paydown (amortization increases equity over time)
• Cap rate compression or market appreciation when the property is refinanced or sold

Historically, a large share of this upside has flowed to:

• Sponsors and operators
• Institutional investors
• Large private equity and pension funds

Private real estate equity structures allow individual investors — often as limited partners (LPs) — to participate in that ownership alongside a sponsor or general partner (GP), according to a defined structure.

Same building. Same tenants. Same operations.
The question is: are you only the lender, or do you also own a piece of the equity that captures long-term growth?

Equity’s Place in the Capital Stack

Every real estate project is funded with some combination of capital layers — the capital stack. A simplified stack looks like this:

• Senior Debt (bank or private lender)
• Junior / Mezzanine Debt (sometimes)
• Preferred Equity (sometimes)
• Common Equity (the owners at the bottom)

Private real estate equity typically sits in that common equity piece.

That means:

• Equity is last in line for repayment if things go wrong
• Equity receives distributions and sale proceeds only after all obligations to debt and preferred equity are satisfied
• Equity enjoys uncapped upside relative to its contribution if the project outperforms

In many modern structures, equity is further divided into:

1. GP Equity – the sponsor/operator, usually with:
   • A smaller capital contribution
   • Management responsibilities
   • A “promote” or performance-based profit share
2. LP Equity – the limited partners, usually with:
   • The majority of the capital
   • Limited control
   • Priority on return of capital and preferred returns before the GP promot

The waterfall — or distribution structure — defines exactly how:

• Cash flow is split between GP and LPs
• Capital is returned
• Profits are shared above specific return hurdles

Understanding where equity sits in the stack and how the waterfall works is essential before investing.

How Private Equity Shows Up in Real Housing Projects

Private equity is not abstract. On the ground, it is the risk capital that allows housing projects to exist.

Equity capital is used to:

• Acquire land
  Secure sites in advance so planning, design, and entitlements can move forward.
• Fund predevelopment
  Pay for architects, engineers, studies, and approvals before a shovel hits the ground.
• Provide the “skin in the game” that pairs with debt
  Lenders rarely finance 100% of a project. Equity fills the gap.
• Absorb early volatility
  Lease-up periods, build-out timelines, and stabilization all involve uncertainty. Equity rides that out.
• Support long-term ownership
  In build-to-rent and long-hold strategies, equity participates in cash flow year after year, not just the sale.

For attainable housing, equity is particularly important. Margins are often thinner than luxury product. A sponsor and equity investors must be committed to:

• Efficient, precision-built or offsite construction
• Disciplined operations
• Long-term community outcomes — not just a quick trade

Properly structured, equity allows developers to build housing that makes sense for families, communities, and investors over a long horizon, not just a single cycle.

Why Investors Use Private Equity in Their Portfolios

For many investors, private real estate equity plays a growth and income role alongside other asset classes.

When structured thoughtfully, it can offer:

1. Cash Flow Participation

A share of distributable cash flow after expenses and debt service — not just a fixed coupon.

2. Long-Term Appreciation

Participation in value growth driven by:

• Rent increases
• Improved operations
• Strategic capital improvements
• Market cap rate dynamics

3. Inflation Alignment

Rents and replacement costs tend to move with inflation over long periods. That makes well-bought, well-located real estate a potential inflation hedge.

4. Tax Efficiency

Depending on jurisdiction and investor circumstances, equity investors may benefit from:

• Depreciation and cost segregation
• Capital gains treatment
• Evaluate the operator’s track record,
• Ability to defer or manage taxes through timing and structure

5. Real Asset Exposure

Ownership in tangible assets — land and buildings — not just intangible cash flows.

The trade-offs are real:

• Equity is riskier than debt in the same project. If things go wrong, equity takes losses first.
• Equity is usually less liquid than a public stock or REIT. You are committing capital for a multi-year hold.

That’s why many sophisticated investors do not pick only equity or only debt. Instead, they build a mix across:

• Public markets (stocks, bonds, REITs)
• Private equity
• Private debt
• Other real-asset strategies

Private equity is one tool in a broader, long-term plan.

Questions to Ask Before Allocating to Private Equity

Whether private real estate equity fits your situation depends on your goals, constraints, and temperament. Experienced investors typically ask:

1. Time Horizon

Can I comfortably commit capital for 5–10 years or more, understanding this is not a liquid trading position?

2. Liquidity Needs

Am I comfortable with limited liquidity, in exchange for long-term ownership, cash flow, and appreciation potential?

3. Risk Tolerance

How do I feel about:

• Taking first-loss risk in exchange for more upside?
• The possibility that a project could return less than expected, or take longer than expected?

4. Understanding

Do I clearly understand:

• The strategy (build-to-rent, value-add, core, development, etc.)
• The capital stack and where my equity sits
• The fees and promote structure
• The waterfall — how and when cash is distributed?

5. Alignment

Do the projects and sponsor align with what matters to me?

• Attainable housing
• Workforce communities
• Long-term stewardship vs. short-term flipping

These questions are not about right or wrong answers. They are a framework for thinking, not a recommendation.

How Fort + Home Uses Private Equity (Educational Context Only)

Fort + Home is a vertically integrated platform focused on building attainable, precision-built housing across Western Colorado and the broader Rocky Mountain region. To finance real projects, we use a mix of:

• Bank and agency debt
• Private real estate debt
• Private equity capital

Private equity is one of the tools in that mix. It helps:

• Acquire and entitle sites for small homes and small multifamily communities
• Pair with construction and factory financing to deliver precision-built housing at scale
• Hold stabilized properties where long-term ownership creates durable cash flow and community impact

Any specific investment opportunity tied to Fort + Home is offered only through formal offering documents and only to eligible investors under applicable laws. This article:

• Does not describe specific offerings
• Does not present terms or projected returns
• Is not an offer or solicitation

It is simply an educational explanation of how private equity functions in real estate.

If you want to continue learning about private real estate equity and the broader capital stack, here are some educational next steps:

Important Disclaimer

This article and the linked video are for educational purposes only and are not: an offer to sell any securities, a solicitation of an offer to buy any securities, investment, tax, or legal advice. Any actual investment opportunity would be offered only through formal offering documents and only to eligible investors in accordance with applicable securities laws. You should consult your own advisors before making any investment decisions.