International Real Estate Review

Abstract

We study the relative performance of private equity real estate joint ventures by using new data that connect investment style, ownership structures, and quarterly cash flows for a large sample of sold properties from 1978-2009. The expansion into joint ventures by private equity core, value-added and opportunistic real estate funds since 1990 has been significant. This paper tests three hypotheses. First, do real estate joint ventures experience higher returns? Second, are investment fund managers generally willing to take on riskier projects in forming joint ventures? Third, are joint ventures formed to procure new business and grow assets under management and maximize fund fees? Tests of these hypotheses are performed by using quantile regressions, to determine whether the returns on joint venture projects are more concentrated in the tails of the return distribution ¡V particularly in the left (low end) tail ¡V than are whole assets. We reject the hypothesis that real estate joint ventures experience abnormal returns overall. However, we do find evidence that there is a lot more risk taking by value-added funds relative to core funds. Our evidence is also consistent with more risk taking by large investment fund managers vs. small investment fund managers.