Private Equity Real Estate: Asymmetric Effects of Gearing and Drivers of Performance

With interest rates near all-time lows in late 2015, Stanley Cirano knew it was an opportune time to consider the financing on his portfolio of commercial real estate. Cirano Properties was the general partner on three separate private equity investments of retail shopping centers in suburban Chicago. The first, Brookline Road Shopping Center, had been acquired in 2006 and had been managed through the financial crisis and real estate downturn. The property was performing well and Cirano wondered whether it made sense to refinance or sell. The second property, Columbus Festival Plaza, had been acquired in a 2010 bankruptcy auction. Although the property had needed a good amount of capital improvements, Cirano was proud of the growth in net operating income he had been able to generate. The final property, Deerwood Acres, had been developed by Cirano himself after acquiring the property in 2013 from the previous owner, who had been operating a go-cart track and drive-in theater on the land. Cirano expected great things from the property, though his lease-up had been slower than anticipated. Although the three properties had different levels of performance and presented different management issues, they all shared the fact that they were all significantly financed, in part, with debt. As the properties were acquired at different times, Cirano had simply selected what seemed like reasonable financing at the time. With his concern that interest rates would soon be rising, Cirano thought it made sense to take a holistic view of his portfolio, consider what debt options were available to him, and make a sound strategic decision on the financing of all his assets at the same time.

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Pension Funds and Private Equity Real Estate: History, Performance, Pathologies, Risks

SSRN Electronic Journal ◽

10.2139/ssrn.3682113 ◽

2020 ◽

Author(s):

Timothy J. Riddiough

Keyword(s):

Real Estate ◽

Private Equity ◽

Pension Funds

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International Real Estate Review

International Real Estate Review ◽

10.53383/100322 ◽

2021 ◽

Vol 24 (2) ◽

pp. 253-292

Author(s):

Zhengzhen Tan ◽

◽

Siqi Zheng ◽

Juan Palacios ◽

Carl Hooks ◽

...

Keyword(s):

Real Estate ◽

Quantitative Research ◽

Private Equity ◽

Risk Mitigation ◽

Emerging Market ◽

Theoretical Models ◽

Real Estate Investment ◽

Firm Level ◽

Building Conditions ◽

Equity Funds

Our paper aims to examine the healthy building adoption patterns by first asking two critical questions that are relevant to the market conditions: What are healthy buildings? What is their financial value for tenants and owners? We then synthesize the existing academic and industry literature. We find some early evidence of a real estate price premium for specific indoor environment quality (IEQ) and design features. In terms of health-focused building certification systems (BCSs), no empirical and quantitative research has been done on the financial performance of healthy buildings, except for theoretical models. We then proceed to conduct interviews with executives of 15 real estate corporations across the globe to understand the perspectives of real estate owner operators and their strategies for this emerging market. The interviews results confirm that the scarcity of empirical evidence that links healthy building attributes to financial returns inhibits the adoption of healthy buildings in mainstream designs. Moreover, differences in the adoption patterns of healthy buildings are due to the building ownership structure at the firm level, tenants, end-users and building conditions. The strategies of firms in pursuing a healthy building range from risk mitigation to proactive pursuit of new growth opportunities. Private equity funds and real estate investment trust (REIT) firms tend to focus on risk mitigation, while direct real estate investment firms are more likely to carry out the latter to position themselves as a leader within the real estate industry.

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INVESTMENT STRATEGIES OF INSTITUTIONAL INVESTORS: SOVEREIGN WEALTH FUNDS VS ENDOWMENTS

MGIMO Review of International Relations ◽

10.24833/2071-8160-2013-6-33-117-126 ◽

2013 ◽

pp. 117-126

Author(s):

E. S. Biryukov

Keyword(s):

Real Estate ◽

Hedge Funds ◽

Institutional Investors ◽

Private Equity ◽

Investment Strategy ◽

High Yield ◽

Income Volatility ◽

Sovereign Wealth Funds ◽

The World

The paper considers two main original approaches to investing the assets of institutional investors (the total amount of their assets in the world is about 100 trillion dollars) – the one of Norway's sovereign wealth fund Global and approach of Yale's endowment fund. Fund Global with assets of $ 716 billion dollars is the largest institutional investor in the world, its strategy is based on the assumption that markets are efficient and their long-term growth lies in the balance of investment in stocks , bonds, and , since more recent time - in real estate. Financiers of Yale in the 1990s revolutionized the approach to investment, firstly, by reducing the proportion of stocks and bonds in favor of private equity and real estate, and secondly , by shift from investments in the domestic market to foreign markets. Not all institutional investors are ready to follow these strategies because of the risk of negative returns in times of crises, but in the medium- and long-term, these approaches allow to beat inflation. For example, Yale's endowment has grown since 1985 to 2012 from 1.6 to 19 billion dollars, and high yield allows to transmit 1 billion dollars (!) to the budget of the university annually. Endowment funds are one of the key sources of revenues of leading American universities. Analysis of the investment policy of endowment funds and sovereign wealth funds shows that fundamental changes in the concept of investing began to occur since the late 1980s - early 1990s . Institutional investors of both these types ceased to focus on conservative instruments - bonds and deposits , and use other options: Global - stocks , Yale – private equity , hedge funds, real estate investments , etc. With the expand of the spectrum of instruments in which the funds are invested the income volatility increases either, and therefore the institutional investors should be both transparent and explain to the public the motives of investment strategy changes.

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Expect the Unexpected: Risk Measurement and Management in Commercial Real Estate

Kellogg School of Management Cases ◽

10.1108/case.kellogg.2021.000049 ◽

2017 ◽

pp. 1-16

Author(s):

Craig Furfine

Keyword(s):

Real Estate ◽

Private Equity ◽

Foreign Currency ◽

Cash Flows ◽

Commercial Real Estate ◽

Risk Measurement ◽

High Quality ◽

Logistics Market ◽

Overseas Investment ◽

Future Condition

In early December 2013, Roxann Biller, Associate at the Chicago-based private equity firm Delta Quantitative Real Estate Capital, was asked to assess the risk associated with the firm's first potential overseas investment. Haifu Sentā Gendaino (HSG) was a large multi-tenant logistics property located in the Gaikando area of Tokyo. High-quality tenants currently occupied the property, so at first glance the risks of investing in the property seemed minimal. However, Biller knew that she had to consider the potential drawbacks. This would mean gaining a better understanding of each tenant, trying to forecast the future condition of the Tokyo logistics market, and considering what new risks her firm would face because the property's cash flows were in a foreign currency.

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The Role of Financial Leverage in the Performance of Private Equity Real Estate Funds

The Journal of Portfolio Management ◽

10.3905/jpm.2013.39.6.099 ◽

2013 ◽

Vol 39 (6) ◽

pp. 99-110 ◽

Cited By ~ 5

Author(s):

Jamie Alcock ◽

Andrew Baum ◽

Nicholas Colley ◽

Eva Steiner

Keyword(s):

Real Estate ◽

Private Equity ◽

Financial Leverage

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