(November 8, 2013) — Real estate funds that focus on investments in specific sectors, such as student housing or industrial assets, have outperformed those that invest across a broader range of sectors, Preqin has found.
The alternatives data specialist reported that while 58% of US-focused single-type property funds between 2000 and 2010 beat the median benchmark, only 47% of diversified funds achieved the same.
Funds that invest in sectors including student housing, care homes, and medical facilities, have performed particularly well, Preqin said.
Half of US-focused closed-end private real estate funds between 2000 and 2010 targeting these sectors were top quartile performers, with 81% producing above average returns.
In addition, while just under half of industrial US-focused funds were in the top quartile, 76% of them beat the median benchmark.
“While the largest real estate fund managers will continue to be able to raise sizeable diversified offerings, institutional investors are increasingly looking for firms that can offer expertise in a particular sector when investing with small and mid-sized managers,” said Andrew Moylan, head of real estate products at Preqin.
“This increased appetite for specialist managers has resulted in sector-specific offerings accounting for an increasing share of fundraising for the US private real estate market, with specialist firms more likely to meet or exceed their fundraising goals than those raising funds which target a range of sectors.”
Preqin also reported strong fundraising figures for sector-specific funds over the past year. It said $15 billion was raised by the 39 sector-specific US-focused real estate funds that have closed so far in 2013, 50% more than was raised by funds of this type that closed during the whole of 2012.
US-focused residential property funds saw a large part of that increase, with capital raised more than doubling from $4.3 billion for funds closed in 2012 to $9.2 billion for funds closed so far in 2013.
It is not just niche real estate offerings in the US that are proving good value: London hotels are also booming. The UK capital’s hotels have outperformed all other commercial property in Europe over the last three years, according to estate agents Savills.
Investment data company SNL Financial reported that companies with exposure to the London hotel market have outperformed most of the broad market indices over the past year. As of October 25, the average one-year total return for those companies with London hotel exposure was 27.7%, it said.
By comparison, the SNL US REIT Equity Index provided returns of 15.4% across the same one-year period, while the SNL UK REIT Equity Index provided returns of 25.1%.
Those companies exposed to the London hotel market also slightly outperformed the S&P 500, which posted a one-year total return of 27.3% as of October 25.
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