Performance ratings urged for real estate funds

Without more transparency on fund performance, the European real estate industry is ‘doomed to repeat the mistakes of the past‘, Ric Lewis, CEO of Tristan Capital Partners, said in an interview with PropertyEU.

‘If we don’t find more effective ways of punishing poor performance and rewarding good performance, we’re going to get more of the same,’ he said in an exclusive interview.

While the equity fund business has a clear rating system, there is no scientific way of measuring the performance of non-listed vehicles, Lewis argued.

‘Real estate is an amorphous long-life asset. We haven’t agreed as an industry how to rate management and performance. There’s no way to do that, if there was, it would really be clear. But you need to have agreement on definitions and more importantly, access to everybody’s data. A non-performer is not going to agree to give that away. I know industry groups are trying to get there, but nobody has come out and said: “I’m going to create the rules”. And if somebody were to create the rules, they wouldn’t have the authority. There’s no transparency and there is no carrot and stick.’

Lewis sees ease of entry as another key challenge for the industry.

‘I say this a little tongue in cheek, but I think our industry is the domain of the common lowest denominator, which is both an opportunity and a huge risk. There are low barriers to entry to being an investor in property – everybody thinks they know how do it, find equity and get access to debt, so everybody and their brother ends up being in our business. On the one hand, the benefit is that it brings great creativity, different ideas and different structures into the industry. The other side, however, is that there is great potential for destruction and mishaps to occur because everybody gets in there, the good, the bad and the ugly, including the dishonest and the ill-informed,’ he said.