Investors have numerous options for owning real estate. Direct investment is one, and various forms of shared ownership offer others. In addition, real estate funds may be public or private and can be formed as corporate entities or investment trusts. In either example, the fund is often created for an indeterminate period but may have a specific lifespan in some cases.
In the example of a private real estate investment fund designed for a limited lifespan, the goal is likely to be a return based on asset sales rather than rental income. Predictably, the fund would seek to buy assets and improve them before disposing of them for a profit. The improvements could include physical, administrative, and financial.
Suppose a closed-end fund acquired an apartment complex in disrepair. The fund could improve the market value in several ways:
Those changes could potentially raise the property's value, allowing the fund to sell it and return the proceeds to the investors. However, investors in closed-end real estate funds should be aware of the risks involved since the outcome isn't guaranteed, and the initial cash flow may be negative. The success or failure of the project may rely not only on general economic conditions but also on the successful execution of the fund manager's strategy.
A closed-end fund is not likely to be liquid during the stated life, and even if the goals are achieved, and the fund is performing at better-than-anticipated success indicators, it will end when the time is reached.
A REIT (Real Estate Investment Trust) can also have a limited lifespan, and in that case, would be referred to as a finite life REIT, but like closed-end real estate funds, these are not common. REITs can be privately or publicly traded and are typically highly liquid since investors can buy and sell them on public exchanges or robust private markets. With a typical open-ended REIT, the trustee is responsible for buying and selling decisions, and 90% of taxable income must be distributed to the shareholders. If a REIT has a finite life, the intention would likely be to pursue capital gains in addition to the income from rent. Those gains would also need to be distributed to the shareholders on a defined schedule.