How to Benchmark Performance in Private Real Estate Investments

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:

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

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:

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:

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.

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