{"id":1004035608,"date":"2011-12-28T13:52:29","date_gmt":"2011-12-28T21:52:29","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004035366"},"modified":"2022-12-09T01:30:51","modified_gmt":"2022-12-09T09:30:51","slug":"reits-versus-real-estate-private-equity-funds-who-wins","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/reits-versus-real-estate-private-equity-funds-who-wins\/","title":{"rendered":"REITs Versus Real Estate Private Equity Funds: Who Wins?"},"content":{"rendered":"<p>Earlier this year, Ernst &amp; Young held a workshop in London for about 300 real estate clients from Europe, the Middle East, India and Africa. One of the liveliest sessions featured a debate, moderated by Dean Hodcroft, an EY partner and head of real estate in the region. The question posed for the debate: \u201cThis house believes that real estate private equity will always outperform the listed real estate sector in normal market conditions.\u201d Teams representing private equity and the listed sector fiercely debated their point of view.<\/p>\n<p>The Private Equity team made key arguments that PE is better for a number of reasons:<\/p>\n<ul>\n<li>Private equity can be nimble, having more ability to buy at the bottom of the market, sell at the top.<\/li>\n<li>Opportunistic buying makes sense, because cycles don\u2019t track uniformly by asset class or geography.<\/li>\n<li>Opportunistic funds can go where the opportunity is. REITs are limited by focusing on asset class or geography.<\/li>\n<li>Private equity is better managed and aligned: general partners are highly invested and, so, focused on achieving high returns.<\/li>\n<li>Private equity is disciplined by its focus on achieving a successful exit.<\/li>\n<li>There is no mystery about PE compensation (annual management fees plus carried interest), and it is correlated to performance.<\/li>\n<li>The listed sector has a number of perceived weaknesses: There is a lack of alignment between management and performance, there are endless committees and regulations \u2014 it takes a long time to reach decisions, and liquidity is illusory \u2014 only big REITs are liquid.<\/li>\n<li>And, finally, PE uses more leverage, so it should be able to outperform the listed real estate sector.<\/li>\n<\/ul>\n<p>The <a href=\"https:\/\/www.commercialsearch.com\/news\/research\/reits\/\">REIT<\/a>\u00a0team made the following case for its sector:<\/p>\n<ul>\n<li>REITs have operational expertise in the real estate market, as well as systems \u2014 they don\u2019t take advantage of fads.<\/li>\n<li>REITs are domestic \u2014 they are focused, rather than attempting to cover the globe and enter markets they don\u2019t really understand.<\/li>\n<li>REITs have access to capital at all times in the market cycle, whereas PE does not.<\/li>\n<li>REITs have liquidity.<\/li>\n<li>REITs invest in the broad market, unlike PE.<\/li>\n<li>REITs operate in a regulated framework and investors take comfort from that.<\/li>\n<li>REITs have to stay close to their stated strategy.<\/li>\n<li>Governance is high in REITs \u2014 remuneration committees report openly, whereas PE remuneration can be unclear.<\/li>\n<li>REITs are subject to three-monthly valuations by external valuers \u2014 PE has less regular valuations, and many are internal.<\/li>\n<li>REITs are less constrained in terms of exit date.<\/li>\n<li>Private equity needs to manage the potential moral hazard \u2014 PE managers want to invest money fast but they are also the guardians of investors\u2019 interests.<\/li>\n<li>The ultimate sanction for REITs is that they operate in an open market \u2014 the market can change the management if it chooses; in PE, the management is there to stay.<\/li>\n<li>There is some truth that listed real estate is driven partly by underlying stock market sentiment rather than real values. However, real estate stocks are highly correlated with the underlying real estate market.<\/li>\n<li>The PE market depends on maximizing leverage. The listed sector therefore delivers a higher absolute return with lower leverage and lower risk.<\/li>\n<\/ul>\n<p>Asked how they would choose to invest following the debate, 69 percent of conference delegates backed private equity. However, asked which team won the debate, 52 percent voted for the listed sector team \u2014 an even- handed outcome.<\/p>\n<p>What\u2019s your view?<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Earlier this year, Ernst &amp; Young held a workshop in London and debated the pros and cons of private equity versus REITs, and the results were surprisingly split. <\/p>\n","protected":false},"author":1201,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37301],"tags":[],"class_list":["post-1004035608","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v28.0 (Yoast SEO v28.0) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>REITs Versus Real Estate Private Equity Funds: Who Wins? - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/reits-versus-real-estate-private-equity-funds-who-wins\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"REITs Versus Real Estate Private Equity Funds: Who Wins?\" \/>\n<meta property=\"og:description\" content=\"Earlier this year, Ernst &amp; Young held a workshop in London and debated the pros and cons of private equity versus REITs, and the results were surprisingly split.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/reits-versus-real-estate-private-equity-funds-who-wins\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2011-12-28T21:52:29+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-09T09:30:51+00:00\" \/>\n<meta name=\"author\" content=\"Nicholas Ziegler\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/reits-versus-real-estate-private-equity-funds-who-wins\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/reits-versus-real-estate-private-equity-funds-who-wins\\\/\"},\"author\":{\"name\":\"Nicholas Ziegler\",\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/#\\\/schema\\\/person\\\/ff3a837f33daecfcf8978b405eaae20c\"},\"headline\":\"REITs Versus Real Estate Private Equity Funds: Who Wins?\",\"datePublished\":\"2011-12-28T21:52:29+00:00\",\"dateModified\":\"2022-12-09T09:30:51+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/reits-versus-real-estate-private-equity-funds-who-wins\\\/\"},\"wordCount\":565,\"commentCount\":0,\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/reits-versus-real-estate-private-equity-funds-who-wins\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/reits-versus-real-estate-private-equity-funds-who-wins\\\/\",\"url\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/reits-versus-real-estate-private-equity-funds-who-wins\\\/\",\"name\":\"REITs Versus Real Estate Private Equity Funds: Who Wins? 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