Private Equity Real Estate Fund Performance: A Comparison to REITs and Open-End Core Funds

With interest rates near all-time lows in late 2015, Stanley Cirano knew it was an opportune time to consider the financing on his portfolio of commercial real estate. Cirano Properties was the general partner on three separate private equity investments of retail shopping centers in suburban Chicago. The first, Brookline Road Shopping Center, had been acquired in 2006 and had been managed through the financial crisis and real estate downturn. The property was performing well and Cirano wondered whether it made sense to refinance or sell. The second property, Columbus Festival Plaza, had been acquired in a 2010 bankruptcy auction. Although the property had needed a good amount of capital improvements, Cirano was proud of the growth in net operating income he had been able to generate. The final property, Deerwood Acres, had been developed by Cirano himself after acquiring the property in 2013 from the previous owner, who had been operating a go-cart track and drive-in theater on the land. Cirano expected great things from the property, though his lease-up had been slower than anticipated. Although the three properties had different levels of performance and presented different management issues, they all shared the fact that they were all significantly financed, in part, with debt. As the properties were acquired at different times, Cirano had simply selected what seemed like reasonable financing at the time. With his concern that interest rates would soon be rising, Cirano thought it made sense to take a holistic view of his portfolio, consider what debt options were available to him, and make a sound strategic decision on the financing of all his assets at the same time.

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Pension Funds and Private Equity Real Estate: History, Performance, Pathologies, Risks

SSRN Electronic Journal ◽

10.2139/ssrn.3682113 ◽

2020 ◽

Author(s):

Timothy J. Riddiough

Keyword(s):

Real Estate ◽

Private Equity ◽

Pension Funds

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International Real Estate Review

International Real Estate Review ◽

10.53383/100322 ◽

2021 ◽

Vol 24 (2) ◽

pp. 253-292

Author(s):

Zhengzhen Tan ◽

◽

Siqi Zheng ◽

Juan Palacios ◽

Carl Hooks ◽

...

Keyword(s):

Real Estate ◽

Quantitative Research ◽

Private Equity ◽

Risk Mitigation ◽

Emerging Market ◽

Theoretical Models ◽

Real Estate Investment ◽

Firm Level ◽

Building Conditions ◽

Equity Funds

Our paper aims to examine the healthy building adoption patterns by first asking two critical questions that are relevant to the market conditions: What are healthy buildings? What is their financial value for tenants and owners? We then synthesize the existing academic and industry literature. We find some early evidence of a real estate price premium for specific indoor environment quality (IEQ) and design features. In terms of health-focused building certification systems (BCSs), no empirical and quantitative research has been done on the financial performance of healthy buildings, except for theoretical models. We then proceed to conduct interviews with executives of 15 real estate corporations across the globe to understand the perspectives of real estate owner operators and their strategies for this emerging market. The interviews results confirm that the scarcity of empirical evidence that links healthy building attributes to financial returns inhibits the adoption of healthy buildings in mainstream designs. Moreover, differences in the adoption patterns of healthy buildings are due to the building ownership structure at the firm level, tenants, end-users and building conditions. The strategies of firms in pursuing a healthy building range from risk mitigation to proactive pursuit of new growth opportunities. Private equity funds and real estate investment trust (REIT) firms tend to focus on risk mitigation, while direct real estate investment firms are more likely to carry out the latter to position themselves as a leader within the real estate industry.

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