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PERE: Delving into performance numbers

The differences in valuation methodologies among managers makes assessing a firm’s track record far from a straightforward process.

Real estate manager performance is under greater scrutiny by investors and consultants than ever before, but complicating matters are discrepancies among managers in how performance is reported.

“In working with institutional investors and consultants, the intensity of the underwriting of track records has really stepped up,” says Doug Weill, managing partner at New York-based placement and advisory firm Hodes Weill & Associates. “We’re seeing it as one of the most important factors when institutions are reviewing managers.”

Most real estate managers, after all, have been in business for more than a decade and managed multiple funds through at least one cycle. But because a non-liquidated fund is a more recent indicator of a manager’s performance, “a good amount of underwriting of a manager is done with the funds held at value rather than those that have been fully or substantially liquidated,” he says.

“The challenge is that managers employ very different approaches to estimating ‘fair values’ for their unrealized investments,” Hodes Weill noted in a March report. For example, some public managers with real estate platforms may more rigorously mark assets to ‘fair value’ on a quarterly basis, whereas private managers are often more conservative in their valuation approach and may hold investments at cost for up to several years, the report said.


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