Is Value - Added and Opportunistic Real Estate Investing Beneficial? If So, Why?

Shilling, James D.; Wurtzebach, Charles H.

doi:10.1080/10835547.2012.12091346

Cited by 30 publications

(14 citation statements)

References 39 publications

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“…The different leverage behaviors observed in the two samples are consistent with previous studies. Shilling and Wurtzebach (2012) found that the impact of leverage on a fund performance depends on the investment style of the vehicle itself. Furthermore, Fuerst and Marcato (2009) demonstrated that leverage improves the performance of core open-ended funds.…”

Section: Results and Findingsmentioning

confidence: 99%

“…The investment style is often an important variable to determine a fund’s performance. Examining core, value-added and opportunistic US funds, Shilling and Wurtzebach (2012) found that the latter two categories outperform core investments when there are favorable market conditions and the possibility to access low-cost debt. Conversely, Pagliari (2017) found a relative underperformance of value-added and opportunistic funds compared to core funds.…”

Section: Literature Reviewmentioning

confidence: 99%

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Performance determinants of European private equity real estate funds

Morri

Perini

Anconetani

2021

JERER

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Purpose The paper aims to investigate the performance determinants of European non-listed private equity real estate funds between 2001 and 2014. Design/methodology/approach Using a sample of 363 funds collected from the Inrev database, the analysis evaluated the impact of fees and other intrinsic characteristics of these funds, such as leverage, size and duration, on the funds’ performance, intending to enhance the understanding underlying their relationship. Findings The findings show a negative relationship between the return of the funds and redemption fee, performance fee and management fee. Conversely, marketing fees have a positive effect on performance. When analyzing the investment style, the results reveal inhomogeneous behaviors of leverage on funds’ performance. This variable has a positive impact on the return in core funds, while there is a negative relationship in value-added investments. Finally, the emphasis on the global financial crisis shows that the effects of the independent variables on the performance do not significantly change in different economic cycles. Practical implications The practical implication of the research is to understand whether an investor can direct its resources in a fund, leveraging on certain intrinsic characteristics that can be observed a priori. Originality/value Even if there is a considerable body of literature on determinants of performance in European non-listed real estate funds, little research has analyzed the role of fees in driving their results. Besides, this paper takes advantage of observations from different investment styles to emphasize the impact of higher or lower risk profiles and from the full economic cycle to understand the effects of the crisis period.

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Section: Results and Findingsmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Performance determinants of European private equity real estate funds

Morri

Perini

Anconetani

2021

JERER

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“…In Figure 2, the number of observations that cluster between 12% and 18% is 1,569, while the number of observations with total returns in excess of 18% is 1,297. Among these categories, a discriminant function conditional on property type, region, LTV ratio, and acquisition year can correctly classify 80% of the total 4,502 observations within these groupings (see Shilling and Wurtzebach (2011)). It is to the left of the target rate of 8%, though, which concerns us in this paper.…”

Section: Property Return Distributionmentioning

confidence: 99%

International Real Estate Review

Shilling¹,

Wurtzebach²

2015

IRER

Self Cite

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We study the relative performance of private equity real estate joint ventures by using new data that connect investment style, ownership structures, and quarterly cash flows for a large sample of sold properties from 1978-2009. The expansion into joint ventures by private equity core, value-added and opportunistic real estate funds since 1990 has been significant. This paper tests three hypotheses. First, do real estate joint ventures experience higher returns? Second, are investment fund managers generally willing to take on riskier projects in forming joint ventures? Third, are joint ventures formed to procure new business and grow assets under management and maximize fund fees? Tests of these hypotheses are performed by using quantile regressions, to determine whether the returns on joint venture projects are more concentrated in the tails of the return distribution ¡V particularly in the left (low end) tail ¡V than are whole assets. We reject the hypothesis that real estate joint ventures experience abnormal returns overall. However, we do find evidence that there is a lot more risk taking by value-added funds relative to core funds. Our evidence is also consistent with more risk taking by large investment fund managers vs. small investment fund managers.

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“…In particular, we evidence the presence of a negative associative link between property age and asking rates paired with relative stickiness of service charges in time, which may contribute to the mid- and long-term deterioration of property's payoff profile. While mature core properties (Shilling and Wurtzebach, 2012) are generally found to enjoy higher occupancy rates, the building-level net absorption rates may decline as properties get older. We also demonstrate that age contributes to the reduction of elasticity of vacancy rate with respect to the asking rental rate.…”

Section: Introductionmentioning

confidence: 99%

Quantification of financial consequences of buildings' ageing: analysis of panel building-level data from the Polish office space market

Kołodziejczyk¹,

Osiichuk

Mielcarz

2020

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PurposeRelying on a unique proprietary Polish office market space database, the paper attempts to quantify the impact of buildings' age on the financial performance of real estate assets.Design/methodology/approachPanel econometric modeling was utilized to disentangle the impact of buildings' functional obsolescence and technical deterioration on their long-term financial performance.FindingsIn line with casual empiricism, our findings show a negative associative link between properties' age and potential lease revenue. The concomitant stickiness of service charges presages a possible long-term deterioration of financial outcomes of real estate investments. While older buildings generally have higher occupancy rates, the absorption rates are found to be negatively affected by the properties' age. On the bright side, the elasticity of vacancy rate with respect to rental rates is found to decrease as buildings get older. Further, the rent differential is confirmed to be more pronounced in higher age properties hinting at an existing potential for price discrimination, which may at least partially compensate for stagnant rents.Originality/valueOur empirical results confirm the properties' age to be a statistically significant factor in shaping the long-term performance of real estate assets, which should be better accounted for in financial projections for real estate developments.

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Is Value - Added and Opportunistic Real Estate Investing Beneficial? If So, Why?

Cited by 30 publications

References 39 publications

Performance determinants of European private equity real estate funds

Performance determinants of European private equity real estate funds

International Real Estate Review

Quantification of financial consequences of buildings' ageing: analysis of panel building-level data from the Polish office space market

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