How to Benchmark Performance in Private Real Estate Investments

When investing in private real estate, like multifamily assets, one of the biggest challenges passive investors face is determining whether their investments are performing well. Unlike public equities or REITs, where performance metrics are widely available, private real estate lacks a standardized benchmark for evaluation. However, with the right approach, you can establish meaningful benchmarks to assess your portfolio's success.

Here’s how real estate private equity investors can create a framework to evaluate their investments' performance.

Start with Market Comparisons

One of the most effective ways to benchmark private real estate investments is by comparing them to public REITs, which operate in the same sector. Public REITs provide valuable insight into market trends because they report key metrics, such as:

• Occupancy Rates: For example, data from top REITs reveals that average multifamily occupancy hovers around 95%. If your investment’s occupancy is significantly below this level, it might signal an issue with management or market demand.

• Rent Growth: Public REITs report rent growth trends, often averaging 3% annually. Evaluating your property’s rent growth against this benchmark can help identify whether you’re capturing market opportunities effectively.

Here’s an example of the types of reports you can easily access online:

Source: Hoya Capital via Seeking Alpha

At Blue Lake Capital, we’ve analyzed the performance of major apartment REITs to guide our strategies, ensuring our assets remain competitive while outperforming market averages where possible.

Understand the Unique Characteristics of Your Asset: Private Real Estate Investments

No two properties are identical, and direct comparisons can sometimes mislead. To establish an effective benchmark:

1. Consider the Property Class: Class A luxury multifamily properties often command higher rents but may experience slower rent growth compared to Class B or C properties.

2. Local Market Dynamics: Regional variations play a huge role in performance. Compare your property’s metrics to similar properties in the same geographic area.

3. Historical Context: For assets purchased below market value, improvements and rent adjustments take time. Benchmarking against the original acquisition goals is crucial.

For instance, at one of our Atlanta properties, rents were 22% below market at acquisition. Over time, we've narrowed that gap to just 10% by pushing rents closer to market rates while maintaining occupancy—a balancing act that requires sophisticated management.

Focus on Key Performance Metrics

Passive investors should hone in on metrics that truly matter. Here are the benchmarks we prioritize at Blue Lake Capital:

1. Occupancy Stability: High occupancy, ideally 90% or above, ensures steady cash flow.

2. Rent Growth Trends: Compare renewal rates with new lease rates. For example, at several of our properties right now, renewal leases show higher rent growth than new leases, aligning with broader market trends. Recognizing these trends and leaning into them is key for maximizing returns. 

3. Expense Ratios: An efficient expense ratio between 40-50% indicates strong management control over costs, while simultaneously not neglecting the properties.

4. Bad Debt Levels: Minimal write-offs (ideally below 2%) demonstrate effective tenant screening and rent collection practices.

   
   

Set Personal Benchmarks as an Investor

While market comparisons are important, your goals as an investor should guide your benchmarks. Are you focused on cash flow, equity growth, or overall return on investment? Here’s how to align benchmarks with your objectives:

• Cash Flow Investors: Track net cash flow distributions relative to your initial investment. Are you meeting or exceeding your expected return?

• Growth Investors: Focus on rent increases, occupancy rates, and long-term asset appreciation.

• Overall Performance: Compare your investment’s internal rate of return (IRR) against industry averages. A strong multifamily IRR typically falls between 12-18%, depending on market conditions.

Transparency and Communication Are Key

As a passive investor, you rely on your sponsor to provide detailed, accurate, and timely updates. At Blue Lake Capital, we enhance transparency by adopting practices from leading REITs, including:

• Regular investor calls to discuss asset performance and market trends.

• Clear reporting on financial metrics and operational updates.

• Proactive communication about challenges and opportunities.

This level of transparency empowers our investors to assess their portfolios effectively, even without direct access to day-to-day management data.

The Power of Data-Driven Decisions

By establishing your own benchmarks and leveraging insights from public market data, you can better evaluate the performance of your private real estate investments. Remember, success in private real estate doesn’t happen overnight. Consistent performance, proactive management, and alignment with your goals are what drive long-term wealth creation.

At Blue Lake Capital, we’re committed to helping our investors stay informed and confident in their investments. By combining market comparisons, operational excellence, and clear communication, we aim to provide not only strong financial returns but also peace of mind.

With the right benchmarks in place, you’ll always know how your investments stack up—even in the private real estate world.

P.S. If one of your priorities, like mine, is building and preserving your wealth through multifamily real estate investments, click here to download my new eBook: The Ultimate Guide to Creating & Preserving Your Wealth.

---

Invest With Blue Lake Capital

If you are an accredited investor interested in learning more about passively investing in multifamily properties, click here to complete our investor form and schedule a call with our Investor Relations team.

About Ellie Perlman

Ellie Perlman is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.

Ellie is the founding host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.

She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.

*The content provided on this website, including all downloadable resources, is for informational purposes only and should not be interpreted as financial advice. Furthermore, this material does not constitute an offer to sell or a solicitation of an offer to buy any securities.