While there has been some movement in the management fees of private real estate funds in recent years, there has been little variation in carried interest charges, with 85% of funds in market or with 2011-2012 vintages charging 20% carried interest. The same proportion of 2009-2010 vintage funds charge 20% carried interest. However, changes have occurred in the hurdle rate set by private real estate fund managers. Mean hurdle rates increase steadily by vintage year between 2008 and 2010 – this is likely the result of pressure from LPs regarding performance following the financial crisis, which led to more investor-friendly terms. Despite this, it appears that hurdle rates are now moving back in favour of GPs, decreasing from an average of 9.3% in 2008 to an average of 8.7% for vintage 2012 funds or those currently in market.
Compared to 2006-2008 vintage funds, hurdle rates for 2009-10 vintage funds are slightly more LP-friendly. Only 8% of 2009-2010 vintage funds have hurdle rates in excess of 11%, compared to 13% of 2006-2008 vintage funds. Twenty-seven percent have a 9% hurdle rate, compared to 32% of 2006-2008 vintage funds.
While there may have been a slight shift towards more LP-friendly terms, the hurdle rates for 2011-2012 vintage funds and for those currently raising suggest a shift back in favour of the fund manager. The proportion of funds with hurdle rates of 10% or more has fallen from 35% for 2009-2010 vintage funds to 27% for more recent funds.
The most common preferred return among real estate funds is 9%, with 33% of vintage 2011-2012 and funds raising capital having a 9% hurdle rate.