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Private Equity Real Estate J-Curves

by Andrew Moylan

  • 13 Aug 2010
  • RE

Private equity real estate IRRs are typically negative in the first few years of a fund’s life, increasing over time as investments are exited, and then stabilizing in the final years of the fund’s life. IRRs following this trend form a J-curve trajectory.

For funds of all recent vintage years, performance declined over the two years to Q3 2009, with the median IRR of all but vintage 2003 funds dipping into negative territory. However, most vintage years have since shown an improvement with their median net IRRs increasing in Q4 2009. The median IRR for 2004 vintage funds, which reached a low point at -0.9%, is positive as of Q4 2009, standing at 6.7%. Funds of vintages 2005 and 2006 were significantly affected during this period, and as of Q4 2009, their median IRRs were still negative, standing at -4.0% for 2005 and -6.9 for 2006 vintage funds. Funds of 2007and 2008 vintages also remain in negative territory, with median IRRs of -31.9% and -11.4% respectively. Funds with more recent vintages have significant levels of uncalled capital, allowing for the possibility of an improvement in their performance.

Preqin Real Estate Online includes individual fund-level performance for 790 private equity real estate funds. Please click here for more information.

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