At the Haystack, we look for asymmetric opportunities rooted in overlooked data, and the data says vintage year is a significant differentiator among funds. This week’s research examines a related behavioral trap: How the pressure to raise and deploy capital during bull markets often overrides cycle discipline.

That pressure is real: Every fund manager wants to raise and deploy money as soon as possible, and LPs with dry powder feel it burning a proverbial hole in their pockets. But having pressure and opportunity to invest doesn’t mean you should. When you invest matters - everyone wants to “buy low” but research tells us that’s not what happens, and returns suffer as a result.

PERE, a publication and research platform serving the private real estate fund community, lists more than 12,000 funds in its database. Beyond PERE’s list there are separately managed accounts, non-traded REITs and plenty of other vehicles putting money into illiquid real estate investments on behalf of pension funds, family offices, RIAs and other sophisticated investors.

Despite the size of the fund world, there is not as much research on this as you’d think and some of what we found was sponsored by a trade group or other interested party and therefore a little suspect. But two researchers at University of Reading asked the core research questions in exactly the way fund investors and sponsors would: Which fund characteristics influence private real estate fund performance, and are these consistent predictors across outperforming and underperforming funds?²  

The study looked at points of differentiation among funds including fund size, product type focus, geographical focus, and vintage year, which in hindsight ties to capital markets conditions during the investment period. They did not look hard at risk appetite - all funds studied were value-add or opportunistic - or fund lifespan. We covered an investment-lifespan-related concept in a prior issue.

Here are the key findings:

Fund Size: Size doesn’t matter. Think small, nimble managers can quickly find hidden opportunities or that big funds can bully sellers into better deals? The numbers say otherwise, that “empirically fund size has not [sic] direct impact upon fund performance.” Similarly, first-time funds and later/larger funds from individual managers were neither more likely to outperform or to underperform the averages.

Geographic Focus: Geography generally doesn’t matter but might hurt a fund slightly. In all, funds constrained to a specific geographic investment area performed similarly from an IRR and equity multiple perspective to their diversified peers, although a very slight underperformance was seen amongst the best and worst funds if they were regionally focused.

Product Type Focus: Great managers of sector-specific funds do better than great managers of funds diversified by sector. This was interesting. Amongst all funds, product-type-focused offerings and diversified offerings performed similarly. But that belies a richer truth: Looking only at funds that performed well, product specialization is a big tailwind. Good fund managers outkick their coverage and achieve really good results when they’re focused on a sector, presumably using their sector-specific knowledge and network to find great deals. This result - that high performers juice their performance with a sector focus - is “strongly significant.” For low-performing managers, there was no evidence a sector focus impacted outcomes.

Vintage Year: Managers do poorly if they invest when GDP growth is high. This matters a lot and is broadly applicable to fund managers: There is an inverse relationship between capital markets conditions and fund performance. Bad vintage years are characterized by good capital markets conditions that drive capital availability and high competition for assets, leading to higher asset prices and lower performance for funds that buy in those environments. This vintage year phenomenon is “highly statistically significant” and affirms prior studies that found the same result, sometimes dubbed the “recession vintage” effect. The old adage abides: You make your money in real estate the day you buy.

Cash Flows: Finally, the researchers studied the relationship of overall economic health to the timing of fund contributions and distributions, and found both to be pro-cyclical, meaning they tend to happen in times of GDP growth. This felt in line with what we’re seeing anecdotally today: low levels of fundraising, investing and development. While this relationship is real, the authors noted there remains “a relatively high degree of idiosyncratic behavior in private real estate fund cash flows, particularly distributions.”

Although this research covered only value-add and opportunistic funds with vintage years from 1990 to 2008, recent studies have affirmed several of these results, and these in all lead us to simple lessons: Smart investors can and should avoid bad vintage years and should slightly favor sector specialists, especially if they are known to be high performers. They should also keep in mind that few knowable characteristics help determine fund performance a priori, meaning outcomes are going to be tied less to size or strategy and more to “the exact real estate investment decisions” managers make, so due diligence into manager quality really matters.

The Rake

Three good articles.

• Prologis Scales Back Development Amid Leasing Slowdown - CRE Daily

  Despite exceeding earnings expectations, Prologis is scaling back growth plans by over $1 billion due to tariff-driven market headwinds and increased tenant hesitancy, signaling a cautious turn.

• Comparing Commercial Real Estate Credit Spreads: COVID-19 vs. the 2025 Tariff War - Trepp

  CRE credit spreads are entering a volatility cycle mirroring early COVID, with retail and multifamily leading the repricing—offering institutional investors early-mover signals for risk-adjusted positioning. Trepp data captures widening lender spreads presenting alpha opportunities in capital reallocation strategies.

• 50 Things I’ve Learned Writing Construction Physics - Construction Physics

  Decades of construction industry analysis distilled into 50 nuanced insights—this article offers a rare, data-driven perspective on why projects succeed or fail, how incentives shape outcomes, and where hidden inefficiencies persist.

The Harvesters

Someone making real estate interesting. They don't pay us for this, unfortunately.

Who: Bathhouse and Othership

What: Two pioneers in the urban bathhouse revival, these groups are redefining communal wellness spaces by merging ancient hydrotherapy rituals with modern hospitality models. Their offerings create dynamic health-conscious communities around infrared saunas, ice plunges, and co-working lounges.

The Sparkle: Not your uncle Boris’s bathhouse, these new operators are focused on a young, social and meaning-seeking urban demographic. They offer both DIY experiences and extensive programming, at times turning their saunas into event spaces. Several of these operators are colonizing the East Coast, especially in New York City, but in San Francisco check out Alchemy Springs.

From the Back Forty

A little of what’s out there.

As we get ready for a national conversation on the federal budget and the role of the federal government, this helped us understand how much Uncle Sam actually collects and spends, besides being just an amazing interactive infographic.

And a quick hat-tip to the source: USA Facts has been deemed the least biased and most reliable news source.

Editor’s Note: The Real Estate Haystack believes in sharing valuable information. If you enjoyed this week's newsletter, subscribe for regular delivery and forward it to a friend or colleague who might find it useful. It's a quick and easy way to spread the word.

1  https://www.perenews.com/download-investor-allocations-in-h1-2024-fell-short-of-projections/?utm_source=chatgpt.com

2  Kieran Farrelly & Simon Stevenson, 2016. "Performance drivers of private real estate funds," Journal of Property Research, Taylor & Francis Journals, vol. 33(3), pages 214-235, July. https://ideas.repec.org/a/taf/jpropr/v33y2016i3p214-235.html