Risk Factors of Private Real Estate Funds

Abstract

This thesis examines macroeconomic and fund specific risk factors associated with the return of private real estate funds. Conclusions are based on a sample of funds located in the U.S., with investment focus in the U.S. and with an investment strategy of either core, value added or opportunistic. A quarterly return is calculated from each fund’s internal rate of return and is used as the dependent variable in a random effects model with macroeconomic variables and fund specific dummy variables as explanatory variables. Results show that several macroeconomic factors have an effect on the return of funds, however real GDP growth is the most pronounced as all strategies exhibit an almost one-to-one relationship with this risk factor. Furthermore, more detailed conclusions are drawn upon the effects of fund specific variables when the sample period is split up into a pre crisis, subprime crisis and post crisis period. It is shown that large funds in general outperform small funds in stable market conditions and that the vintage year of funds have significant and long term effects on the return of private real estate funds.