How to Start a Commercial Real Estate Fund

Industrial, retail, office, and medical office are different businesses with different demand drivers, and LPs discount funds that claim all of them. The PPM should name the sectors, the deal size range, the markets, and why your experience maps to that box:

CRE value hangs on three lease variables. WALT — weighted average lease term — is the portfolio's income visibility: a center with 8 years of WALT to national tenants prices like a bond; the same center at 2.5 years prices like a project. Tenant credit determines whether that income is dependable — investment-grade and national credit tenants compress cap rates, while local-tenant rent rolls carry default risk the basis must absorb. And lease structure decides who pays the building's bills: triple-net leases pass taxes, insurance, and maintenance to tenants; gross leases leave expense inflation with the landlord.

The number residential-trained managers underestimate is re-leasing cost. Backfilling commercial space means tenant improvement allowances that can run $30–$100+ per square foot, leasing commissions on multi-year deals, and 6–18 months of downtime. A CRE fund model without a TI/LC reserve line and explicit downtime assumptions on every expiring lease is not conservative — it is incomplete, and it is the first place experienced LPs look.

The classic CRE fund engine is positive leverage: buy at a cap rate above the cost of debt, and the spread amplifies equity yield. That math inverted in the recent rate cycle — debt costing more than the entry cap rate means leverage dilutes current yield until income grows, so acquisitions must be underwritten on basis and income growth rather than financial engineering. State in the documents how the fund behaves in both regimes: maximum LTV (55–65% is a common CRE fund range), whether negative-leverage acquisitions are permitted and on what growth thesis, and interest-rate protection policy on floating debt.

The compensating opportunity is the reset itself: loan maturities are forcing sales, and buying good buildings at a discount to replacement cost from stressed capital structures is a legitimate first-fund thesis — provided the PPM frames it as basis discipline with patience, not market timing.

In residential value-add, you renovate units and mark rents to comps within months. In CRE, value creation is occupancy and lease quality: buy at 70% leased, fill the vacancy, extend the WALT, upgrade tenant credit, and exit at the cap rate the stabilized rent roll deserves. Each lease-up is a negotiated, months-long deal, which is why the manager's leasing capability — in-house or through named brokerage relationships — is a diligence item in a way that a contractor bench is for a flip fund. Your track record section should quote deals in leasing terms: bought at X% occupied and $Y rents, signed these tenants, exited at Z.

You define the CRE strategy once — sectors, deal size, target raise, fee, pref, waterfall, leverage and concentration limits, hold period — and the Fund Builder models the economics so the deck's yield story reconciles with the LPA's terms. Scroll Deck turns the fund into an LP-facing pitch deck built around your leasing track record and sector thesis, and Legal Canvas prepares the formation and offering documents — carrying the sector, tenant-concentration, rollover, and re-leasing cost disclosures — for independent counsel review, with the formation package at $6,000.

A generated fund site and marketplace listing give brokers, tenants, and LPs one consistent public read on the fund — and in CRE, where sellers and leasing brokers also size you up, that consistency works both directions.