Preqin’s Real Estate Online service tracks performance returns for over 1,200 closed end private real estate funds globally, of which 275 sector-specific funds have been assigned quartile rankings. Preqin assigns quartile rankings to funds by looking at both the IRR and multiple for funds which are at least three years into their lifespan. Sector-specific funds are those that focus on investment in one real estate sector, compared with diversified funds which invest across various property sectors. Investors are increasingly seeking managers that can prove their expertise in a particular property sector, with these funds having often outperformed diversified real estate funds. Sector-specific fundraising has also increased in recent years, with 84 sector-specific real estate funds closed in 2010 and 122 sector-specific real estate funds reaching a final close in 2014.
The above chart illustrates the quartile breakdown for all sector-specific funds globally, focusing on the hotel, industrial, office, residential and retail sectors, or the niche sector (which includes student housing, senior home or medical assets). The niche sector comes out on top, with 57% of funds ranked as top quartile and only 10% of funds in the bottom quartile. Although 32% of private real estate funds focusing on the industrial sector are top quartile performers, an equal amount are in the second quartile. Over half of all funds focusing on the sectors examined perform in the top or second quartile, with the exception of office-focused real estate funds.