Size Signals Success: Evidence from Real Estate Private Equity

Krautz, Sebastian; Fuerst, Franz

doi:10.2139/ssrn.2649904

Cited by 3 publications

(4 citation statements)

References 22 publications

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“…In a study of private real estate funds, Krautz and Fuerst (2015) examine the relationship between size and success, noting market concentration in real estate funds is "above average relative to the finance industry and comparable to industries that require extensive capital investments in large-scale machinery, equipment, and technology". Previous research indicates that performance is typically not sustained and in many cases the performance of previous funds is not clearly established.…”

Section: Accepted Manuscript 2 Related Literaturementioning

confidence: 99%

Size effects and economies of scale in European real estate companies

Ambrose

Fuerst

Mansley

et al. 2019

Global Finance Journal

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This study investigates scale economies in European real estate companies. We examine the effects of size on revenue, expense, profitability ratios and capital costs using panel data regression. We find that larger real estate companies in Europe are able to generate higher revenue per unit of company size, incur lower costs and produce higher returns. Net Operating Income ratios and return ratios increase while Selling, General and Administrative expense ratios decrease with the size of a company. However, we do not find evidence that larger companies have lower cost of debt or lower weighted average cost of capital. From our analysis, it is evident that particularly small firms can reap substantial economies of scale as they grow. However, the benefits of further growth tend to be much more modest for larger companies. Given REITs are on average larger than comparable non-REITs this may explain why REITs have lower economies of scale in expenses and revenues than Non-REIT real estate companies.

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Section: Accepted Manuscript 2 Related Literaturementioning

confidence: 99%

Size effects and economies of scale in European real estate companies

Ambrose

Fuerst

Mansley

et al. 2019

Global Finance Journal

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“…There is an extensive body of literature on the past performance of NREFs (e.g. Hahn et al, 2005;Baum and Farrelly, 2009;Tomperi, 2010;Alcock et al, 2013;ANREV, 2013;Krautz and Fuerst, 2015;Fisher and Hartzell, 2016;Kiehela and Falkenbach, 2015;Aarts and Baum, 2016;Farrelly and Stevenson, 2016;INREV, 2016).…”

Section: Literature Review 31 Non-listed Real Estate Fundsmentioning

confidence: 99%

Identifying the risk factors in Indian non-listed real estate funds

Gupta

Newell

Bajaj

et al. 2018

JPIF

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Purpose Investment in non-listed real estate funds (NREFs) in an emerging economy like India has its own challenges that entail a detailed understanding of the risks. The purpose of this paper is to identify the key risk factors across the life cycle of a NREF, based on a considered feedback of various real estate fund management stakeholders. It is important for the investors and fund managers to appreciate these risk factors to make informed investment decisions. Design/methodology/approach The present study based on the literature survey and discussion with experts identifies 39 risk attributes, which were further summarized using factor analysis into a smaller set of factors impacting NREF returns (risk). The relative importance of each risk attribute was examined and ranked using the relative importance index (RII). Further, cluster analysis using Euclidian distance was used to partition these risk attributes in various segments depending on their importance. Findings The risk attributes are summarized as five risk factors, i.e. regulatory RISK, foreign direct investment risk, entry risk, business risk and project risk. Whereas the top five perceived risk attributes are investee/partner risk, project entitlement risk, title risk, legislative and regulatory risk and project execution risk. Practical implications This study has significance to the industry practitioners and the academic community in developing an understanding of the dynamic nature of risks across the life cycle of the NREFs in India and classifying them at the macro-meso-micro levels. Originality/value This paper is one of the first attempts to understand the risks impacting NREFs in India. It will help investors develop a better strategic understanding of the risks across the life cycle of an investment.

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“…Triggered by the comprehensive study of Kaplan and Schoar (2005) on the overall PE-performance we can observe a rising scientific interest in the performance of real estate private equity (REPE) funds. Typically, the studies compare empirical fund performances globally (Aarts and Baum, 2016; Krautz and Fuerst, 2015; Alcock et al , 2013; Baum et al , 2012) or European-wide (Delfim and Hoesli, 2016; Kiehelä and Falkenbach, 2015; Fuerst et al , 2014; Fuerst and Matysiak, 2013; Brounen et al , 2007). National studies are only existent for the US sector (Anderson et al , 2016; Case, 2015; Farrelly and Stevenson, 2016; Fisher and Hartzell, 2016; Hahn et al , 2005; Pagliari et al , 2005; Tomperi, 2010) and the UK sector (Baum and Farrelly, 2009; Bond and Mitchell, 2010; Farrelly and Matysiak, 2012; Oluwaseun Samuel and Olufolahan, 2016).…”

Section: Scholarly Debate On the Performance Of Repe-fundsmentioning

confidence: 99%

“…The lack of transparency and trust analyses on fund performance (Newell, 2016, pp. 408-409; Krautz and Fuerst, 2015, p. 75; Alcock et al , 2013, p. 99; Brounen et al , 2007, pp. 112-116) again might be a consequence of missing database-information.…”

Section: Scholarly Debate On the Performance Of Repe-fundsmentioning

confidence: 99%

Performance vs prospectus = transparency in German closed-ended real estate funds?

Nadler

2018

JPIF

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Purpose The purpose of this paper is to close the transparency gap by comparing ex ante and ex post performance disclosure, thus providing important conclusions regarding the transparency of this important German market segment. Design/methodology/approach Closed-ended real estate funds (CEREFs) are one of the biggest segments of unlisted private equity funds in Germany. CEREFs have a central “profitability promise” that is based on ex ante forecasts given in the prospectus. Typically, equity is tied to these investments for up to 20-30 years, leaving investors highly insecure whether their expectations will be fulfilled and fund managers actually achieve prospected performances ex post. Findings The performance variance analysis of all German CEREFs outstanding during the global financial crisis reveals that prospect-performance disclosures as well as prospect-performance variances cause substantial problems in Germany due to overestimation biases of many fund managers. Research limitations/implications As typical for the recent scholarly debate, also the past disclosure practice in Germany prohibits a long-term performance analysis, unless researchers apply instruments of modern investment analysis like comprehensive financial plans (“Visualisation of Financial Implications)”. Practical implications The transparency developments in CEREF-reporting of the last decade deliver precise recommendations regarding the internal and external performance variance analysis, risk-profiles and stress tests for the future fund management. Social implications The introduced methodology would increase transparency in the segment of CEREF and, thus, improve investor protection. Since private households in Germany mainly acquire these funds, this is a contribution to sustainability in private asset management. Originality/value The paper develops a new methodological framework for performance measurement of unlisted funds. It then assesses for the first time the impact of transparency and trust on fund performances by applying a performance variance analysis.

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Size Signals Success: Evidence from Real Estate Private Equity

Cited by 3 publications

References 22 publications

Size effects and economies of scale in European real estate companies

Size effects and economies of scale in European real estate companies

Identifying the risk factors in Indian non-listed real estate funds

Performance vs prospectus = transparency in German closed-ended real estate funds?

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