Private real estate partnerships tend to outperform institutional real estate investments by a significant margin for several reasons. First, they include a greater proportion of higher risk investments and value-add opportunities while institutional investors mostly buy seasoned and highly occupied properties with less upside. Second, the private investors use more leverage while institutional investors often use none.
Third, they consider smaller properties including those well below US$10m while institutional investors like to play in the large markets with big ticket minimums, and the required yields for the smaller investments are higher while institutional investors will accept single digit returns. Direct investments have some risk associated with the lack of liquidity, but this is true independently of scale, unless you select REITs, which up until now have been the best choice for smaller investors.
Last, private partnerships have aligned incentives with general partners providing some skin in the game, while institutional investment decisions are dominated by those who need to first execute on allocated capital and receive more compensation as a percentage of assets and less as promotes and shared returns.
What does this have to do with designations?