Are Private Equity Funds Superior Real Estate Investors? Evidence from the Hotel Industry

Abstract

We dissect the performance of private equity (PE) investors in commercial real estate. We observe acquisitions, dispositions, and granular performance data for several thousand U.S. hotels. Investments by PEs specializing in the hospitality industry lead to more substantial operating efficiency gains than those by their generalist counterparts. Specialist PEs also improve bottom-line profits—although at the expense of lower guest satisfaction—and realize significantly higher capital gains than other types of investors. By contrast, generalist PE funds’ main comparative advantage in real estate markets may be their access to cheap financing.