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Diversified vs. Sector-Specific Real Estate in North America – February 2016

by Brian Chung

  • 10 Feb 2016
  • RE

North America-focused private real estate funds that target a diverse range of property types have secured over double the amount of capital as funds that focus on one specific property type, despite raising nearly equal numbers of funds since 2012.

As seen in the chart above, real estate funds with a diversified property focus have consistently raised significantly more capital than those targeting a single property type. In 2015, 58 diversified funds reached a final close securing $53.8bn, compared with 50 sector-specific funds raising $19.4bn; however, over $20bn of this discrepancy is due to the three largest funds closed operating on a diversified remit in terms of both property focus and location. Despite a larger proportion of property-specific vehicles meeting or exceeding their initial target in 2015 than diversified funds (71% vs. 67% respectively), since 2012, 57% of North America-focused funds targeting a range of property types have achieved or surpassed their target, compared with half of property-specific funds.

However, when looking at the performance of these North America-focused funds, property-specific vehicles have typically outperformed funds with a diversified investment remit. Performance data for over 960 North America-focused private real estate funds on Preqin’s Real Estate Online shows that 58% of sector-specific funds exceeded their respective benchmark, compared with only 47% of diversified funds. Furthermore, three-quarters of North America-focused funds targeting industrial properties are outperforming their benchmark, while a similar proportion (71%) of funds focused on niche property have done the same.

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