Private Equity Real Estate J-Curves – August 2014

by Madeleine Stretton

  • 07 Aug 2014
  • PE
  • RE

Within the private equity real estate space, as with all traditional private equity vehicles, funds have a tendency to produce negative returns in the initial stages of their life cycle before these returns gradually increase and then finally stabilize in the latter stages of their life, forming the typical J-curve trajectory.

Preqin’s Performance Analyst tracks the median net IRRs for private equity real estate funds, and this data can be used to analyze their J-curves broken down by vintage year. The median net IRRs for funds with 2004-2007 vintage years suffered from declining performance as a result of the financial crisis, although their returns have turned around in more recent quarters. A notable example are the 2007 vintage funds, which produced their lowest median net IRR in March 2009 of -41.8%, but have recovered and produced median net IRR of 6.3% in March 2014.

In contrast, private equity real estate funds that were established just after the financial crisis follow a much more typical J-curve trajectory, as these vehicles were not so heavily affected by the tumultuous financial environment that existed at that time. 2008-2009 vintage funds both produced initial negative returns in the years immediately following their inception, and have gone on to produce positive returns in more recent years.  

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