What kind of returns are LPs targeting in opportunistic funds these days?

Question

For those of you who are LP's, what kind of IRR's are you looking for?  What would you actually expect to get in say a ground-up hotel property?

yoruba123 · Accepted Answer

Everyone is so focused on IRR at 15% for value add, what kind of leverage and growth do you hvae in that model?  what is spread between going in and exit cap rate?  There is a lot more to IRR.  I have seen deals where brokers want some crazy price and solve to a 18 to 20% IRR.  Unfortunately, once you look under the covers, it's easy to see these fucktards are using 4% growth in a market with 1 month rent concession and using 75% LTV.  Well, no shit these dumbasses are getting a 18% IRR while I am getting 12% despite all over assumptions are relatively comparable.

picklemonkey · Answer

For development we are looking for 20%+ IRR. We would dip lower if the project was located in a true gateway city (NY, Boston, D.C, Chicago, LA, or SF). It's hard to justify going much below a 20% IRR when we have sponsors that average a 16% - 17% IRR on their value add deals. There is added risk with any development and that is something we need to be compensated for.

For opportunistic value add deals we would need to see at least a 15% IRR.

Core Plus can be in the 10% - 12% range depending on how heavy the lift is.

picklemonkey · Answer

Yes, I've looked at a lot of deals in Austin. We are getting close to selling 3 developments we completed there.

I'm not sure what you mean by "What you guys look for here". If you're talking about asset class we are open to pretty much anything.  If you are talking about returns, see my response above. It's not a gateway market so we are pretty strict with out return metrics. Honestly, unless something changes dramatically I don't think we will do more deals in Austin anytime soon.

picklemonkey · Answer

MOIC's and IRR are directly tied so it's something that is included in all of our committee memos and models. I don't want to list out the IRR/MOIC targets for all our investment strategies here, but you can do the math based on the guidance I provided above.

15% IRR for a 5 year hold is always a 2.0x MOIC
26% IRR for a 3 year hold is always a 2.0x MOIC

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What kind of returns are LPs targeting in opportunistic funds these days?

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What kind of returns are LPs targeting in opportunistic funds these days?

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