PERE 30 methodology

Ranking the largest private equity real estate firms in the world requires rules, judgment and a willingness to dive into the gray areas of a non-transparent asset class.

Keeping in mind that returns are much more important than size, why would anyone want to create a ranking of private equity real estate firms by size? Short answer: Because our readers will absolutely love it.

Over the years that we've been covering the real estate and private equity industries, we have received numerous phone calls from people who want to know the answer to a seemingly simple question – what are the largest firms? In reality, the question can be answered any number of ways. Do you mean the current value of all the property owned by the firm? Is it the value of the undrawn capital committed to the firm's funds? Is it capital raised over the life of the firm?

We at PERE magazine think we have come up with a unique and powerful apples-to-apples methodology for measuring “size” that takes into account a firm's heft going forward while indicating the scope of its recent investment activity. Rankings are based on the amount of private equity real estate direct investment capital raised from January 1, 2003 until our press time in the middle of last month.

Below are the rules and definitions used to create the PERE 30 ranking.

What is the PERE 30?
The PERE 30 is a ranking of private equity real estate firms globally by size. It is the only apples-to-apples comparison of dedicated, direct-investment private equity real estate programs. The PERE 30 follows on the success of a similar ranking unveiled last year called the PEI 50, which ranked private equity firms. Both the PERE 30 and PEI 50 are produced by PEI Media, the publisher of PERE (Private Equity Real Estate) and Private Equity International magazine.

The PERE 30 is not a performance ranking, nor does it constitute investment recommendations.

The PERE 30 includes private equity real estate firms with varying structures and strategies around the world. The PERE 30 list is made up only of private equity real estate firms that manage primarily private equity real estate-focused limited partnerships. The rankings are based on capital raised over a five-year period for dedicated, direct-investment private equity real estate programs, as defined below.

How we determine the rankings
The PERE 30 rankings are based on the amount of private equity real estate direct-investment capital raised over a roughly five-year period leading up to press time. For 2008, the five-year window spans from January 1, 2003 until mid-April 2008, when the May 2008 issue of PERE magazine went to press. Future rankings will be drawn from a similar 64-month window.

In coming up with our key “PERE 30 Five-Year Fundraising Total,” upon which the PERE 30 rankings are based, we rely on the most accurate information available to answer this question of each firm: How much private equity real estate capital has the firm raised since January 1, 2003?

Where two firms have raised the same amount of capital, the higher PERE 30 rank goes to the firm with the larger active pool of capital raised since 2003 (i.e., the larger single fund).

Accuracy and confidentiality
We give highest priority to information that we receive from the private equity real estate firms themselves, often on background. When the private equity real estate firms themselves confirm details, we seek to “trust, but verify.” Some details simply cannot be verified by us, and in these cases we defer to the honor system. In order to encourage cooperation from private equity real estate firms that might make the PERE 30, we do not disclose which firms have aided us on background and which have not.

Lacking confirmation of details from the firms themselves, we seek to corroborate information using available news reports, press releases, third-party databases, etc.

The global real estate investment industry is sprawling and variegated, but we have attempted to draw some lines around the kinds of firms and the kinds of strategies that should be considered for the PERE 30.

  • • “Private equity real estate”: The definition of private equity real estate, for the purposes of the PERE 30, means equity capital raised for a dedicated program of investing directly into property, primarily. The capital is raised primarily in blind-pool limited partnerships. These investment programs are further distinguished in that they do not primarily pursue what is often described as “core” or “core-plus” investment strategies, but rather “private equity,” “opportunistic” and/or “value-added” strategies. The fund managers primarily do not seek to own the assets in perpetuity but to eventually exit them, realizing a capital gain and generating an internal rate of return for the fund and its investors. Within the private equity real estate market there are certainly gray areas with regard to strategy definitions, but PERE took pains to ensure that the capital counted for the purposes of the PERE 30 fell within our definition of “private equity real estate” to furthest extent possible.
  • • “Capital raised”: This means capital definitively committed to a private equity real estate direct investment fund. In the case of a fundraising, it means the fund has had a final or official interim closed on or after January 1, 2003. The full amount of a fund if it has close on or after this date may be counted. The full amount of an interim close (a real one, not a “soft-circle”) that has occurred recently, even if no official announcement has been made, may also be counted. We also count capital raised through other means, such as co-investment vehicles and deal-by-deal co-investment capital and earmarked annual contributions from a sponsoring entity. Further rules are below.
  • What does not count as “private equity real estate”?

  • • Funds of funds: In the case of a primarily fund-of-funds program, we only count direct investment capital raised, if any.
  • • Separate accounts
  • • Private equity: We do not count capital raised for primarily private equity (i.e. operating business-focused) strategies. Many private equity real estate firms will invest in operating businesses, but their primary focus is on property investment.
  • • Infrastructure: We do not count capital raised for primarily infrastructure investment strategies.
  • • Structured debt: We do not count capital raised for any collateralized bond obligation or debt obligation programs.
  • • Debt investment funds: We do not count debt investment funds, including mezzanine debt.
  • What about hedge funds and other pools of capital?
    We do count private equity real estate capital raised in a segregated fashion, and overseen by a dedicated real estate team, by primarily liquid securities investment managers (hedge funds). However, we do not count capital or give weight to a hedge fund's ability to opportunistically pursue direct private equity real estate opportunities. As with many hedge funds, some large entities have the ability to do private equity real estate deals on an opportunistic basis. We do not include these groups in the rankings. We only count capital raised for dedicated private equity real estate programs.

    What counts as “capital raised?”

  • • Limited partnerships: In most cases, private equity real estate firms raise money through commitments to limited partnerships. In some cases, investment capital is raised in other ways, for example through contributions from an affiliated entity. In all these cases we have sought to accurately determine how much investment capital has been created for the financial sponsor in question over the specified five-year period.
  • • Co-investment capital: Where possible and appropriate, we count LP co-investment vehicles as well as opportunistic LP co-investment capital raised by private equity real estate sponsors. This co-investment capital must be invested alongside a primary limited partnership, not established for a one-off deal or separate account. In deals where multiple sponsors have raised co-investment capital, we only counted the firm's pro-rata share of the co-investment capital raised (in other words, if a firm and three other firms raise $1 billion in LP co-investment capital for a deal, no firm is allowed to count the whole $1 billion for itself).
  • • Affiliated programs: We counted private equity real estate capital raised by affiliated entities so long as the firm has control over those entities, or the vehicles raised bear the clear branding of the firm.
  • • Contributions from sponsoring entities: Where a larger entity has earmarked capital to a firm for a dedicated, direct private equity real estate program, we counted the amount of capital a firm drew down from that entity for direct private equity deals over the defined five-year period.
  • What does not count as “capital raised?”

  • • Expected capital commitments: No matter how confident a firm was about its eventual fundraising goals, we did not count “soft-” or “hard-circled” commitments – only official final and interim closes.
  • • Opportunistic capital: As stated above, an entity that has the ability to opportunistically do large private equity real estate deals, but does not have a dedicated program or team for doing so, was not considered for the rankings. In other words, a large group has the ability to tap $40 billion in equity won't be counted unless that equity has been segregated into a specific vehicle or program and assigned a dedicated private equity real estate direct-investment team that is actively scouting for deals.
  • • Open-ended funds or publicly traded vehicles.