Preqin’s Real Estate Online service currently tracks 1,356 private real estate funds with performance data, with 865 of vintage years 2004-2012. This blog will examine the median net IRRs of real estate vehicles managed by fund managers in three major cities: London, New York and San Francisco, to investigate whether fund manager location affects the performance of private real estate funds.
The chart below shows that real estate funds managed by GPs headquartered in London have performed better than their counterparts in the US. Furthermore, there is a difference between the performance of funds managed in the US, with those based in the East of the country likely to produce better results than those on the West Coast. This is highlighted by funds with vintage 2004-2006; funds managed by New York-based GPs produced a median net IRR of 3.0% compared to -3.0% for real estate fund managers based in San Francisco.
For funds of more recent vintages (2010-2012) the landscape changes, with funds managed by San Francisco-based managers performing on par with funds managed by the London- and New York-based firms. Additionally, the median net IRR is level with the overall performance of the real estate industry, which currently stands at 15.0%. This is a huge turnaround for San Francisco-based managers, as funds with vintages 2010, 2011 and 2012 have generated an 18 percentage point increase on those of vintage years 2004-2006.
As funds with later vintages are yet to fully deploy their capital or exit from their existing investments, the median net IRRs of funds managed in each of these cities is likely to change over the next few years. The data we have seen from earlier vintages, however, suggests that fund manager location can influence fund performance.