Why Does REPE Underperform?

https://www.cambridgeassociates.com/benchmark/rea…

Real estate private equity has put up an annual return of 7.39% over the last 25 years vs. 10.95% for the NAREIT Equity Index. This is troubling because real estate private equity has put up subpar returns with a much higher risk profile.

Opportunistic and value add investment strategies typically have:
-More leverage
-Greater development and execution risk
-Greater refinancing risk
-Greater reinvestment risk
-Greater market risk
-Poor liquidity

How is it that the buy and hold core/core plus investment strategy utilized by most equity REITs has outperformed for so long with such modest leverage?

 
Best Response

EDIT: Just read footnote on page you're referencing which basically disclaims that they are comparing apples to oranges.

Haven't dug into data, but a few points that could explain this: (1) REITs don't generally go to zero. (Relatively) conservative leverage profiles and public market liquidity have ensured that few REITs have had their equity go to zero, whereas a number of large real estate funds had their equity wiped during the financial crisis. (2) Kind of related to number 1, but property values have generally risen over the last 25 years. As long as you were conservatively capitalized and didn't get wiped out as some point, you generally made money. (3) Timing. Not sure what 1992 looked like (as I was still eating glue at the time), but 9/30/17 had some very high REIT valuations. Also, not sure what the size of the REIT universe was in 1992 as the industry really came into its own through the 90s. Prior to current cycle, height of REPE fundraising was in lead-up to recession (heavy skew towards low/negative returns).

 

Id in repudiandae facilis explicabo sunt. Voluptas quis pariatur est ducimus nobis iusto. Vitae soluta eum quia molestias voluptatem nihil. Quis omnis possimus sapiente aliquid nostrum iste.

Eveniet quae praesentium ipsa dolor. Distinctio atque dolorem iusto voluptatem. Qui laudantium saepe voluptatem quia.

Rem consequatur aliquid harum fugit quia officia aut. Inventore nobis tempore a omnis velit molestiae. Adipisci accusamus aut expedita esse dicta officiis exercitationem.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
kanon's picture
kanon
98.9
6
dosk17's picture
dosk17
98.9
7
GameTheory's picture
GameTheory
98.9
8
CompBanker's picture
CompBanker
98.9
9
DrApeman's picture
DrApeman
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”