Real Estate Private Equity vs S&P 500

The essentials in 3 figures

5.12% : average annual yield from U.S. private real estate income over the 20-year period from 2006–2025, compared to 2.12% for U.S. stocks over the same period.

5.4% : 10-year annualized volatility for U.S. private real estate, compared to 15.7% for U.S. stocks, according to the Brookfield study ending in late 2025.

0.06 : historical correlation between U.S. private real estate and U.S. stocks from 1996–2025, according to the Invesco analysis.

These figures do not mean that private real estate offers guaranteed returns, is three times less risky, or consistently outperforms the S&P 500. Above all, they show that its historical profile is different: more current income, valuations that are less reactive to market swings, and performance that has remained largely independent of stocks over the long term.

Good to know
The same average return can mask very different experiences. Two investments capable of producing 8% per year over a long period can have radically different levels of liquidity, temporary losses, and valuation trajectories.

Before we compare: what is real estate private equity?

Real estate private equity involves investing in unlisted real estate assets through a fund, an investment company, or another private vehicle. The manager acquires assets, operates them, may renovate or reposition them, and then organizes their sale according to a defined strategy.

The investor does not simply hold a security whose price fluctuates on the stock market. They are exposed to physical buildings, their income, their costs, their financing, and the manager's ability to execute a business plan.

Real estate private equity, SCPIs, and listed real estate: they are not the same thing

The term "unlisted real estate" covers several realities. An SCPI (real estate investment trust) generally seeks to pool a real estate portfolio and distribute a portion of the income. A real estate private equity fund may have a more active approach, particularly when pursuing a value-add or opportunistic strategy. Conversely, a listed property company or REIT is traded on the stock exchange and reacts much more quickly to financial market movements.

This distinction is important to avoid misleading comparisons. A value-add fund should not be analyzed as a simple alternative to an ETF or an SCPI: its performance depends more on the execution of the value-creation plan.

Where does the return on real estate private equity come from?

Real estate performance can be broken down into several drivers. Understanding this mechanism is more useful than looking solely at a final return figure.

1. Rental income

Rents are the primary source of return. They depend on occupancy levels, tenant quality, lease terms, rent trends, and the expenses borne by the owner.

From 2006 to 2025, Invesco measured an average annual income return of 5.12% for private U.S. real estate, compared to 2.12% for U.S. stocks. This data refers to a U.S. institutional index and does not predict the income of any specific fund.

2. Asset appreciation

The value of a building can change because the market changes, but also because its income changes. At a constant capitalization rate, an asset that generates more net income can theoretically be worth more.

A purely educational example: a building generates €500,000 in annual net income and is valued based on a 5% capitalization rate. Its theoretical value would then be €10 million. If, after renovations and re-leasing, the net income reaches €650,000 and the capitalization rate remains at 5%, the theoretical value rises to €13 million.

This example intentionally isolates a single mechanism. In reality, one must factor in renovation costs, fees, debt, taxes, vacancy, and, above all, changes in the capitalization rate. If this rate rises, the value can fall despite an increase in rents.

3. Financial leverage

Debt can amplify the return on equity when the asset's yield exceeds the cost of financing. It can also amplify losses in the opposite scenario.

This is why two funds investing in similar assets can display very different risk profiles depending on their level of debt, debt maturities, and the type of interest rates used.

4. Operational value creation

In an active strategy, performance can also stem from concrete actions: renovations, energy efficiency upgrades, changes in use, new leasing strategies, reducing vacancy, improving the tenant mix, or cost optimization.

This fourth driver is particularly important in value-add strategies. It provides the manager with more levers, but also increases execution risk.

Good to know
High real estate returns can stem from a high-performing asset, significant use of leverage, or higher risk. You must always look at the source of the return, not just the level.

Real estate private equity vs. S&P 500: how to compare performance accurately?

Comparing the two is tricky because their valuation methods and cash flows differ. The S&P 500 has a daily market price. A private real estate asset is valued periodically, often based on appraisals, comparable transactions, and income.

This difference influences how we observe volatility and market downturns.

The S&P 500 has outperformed over several recent periods

NCREIF data for the third quarter of 2025 shows that the NFI-ODCE index, which tracks large U.S. core private real estate funds, posted a positive one-year return but continues to lag behind U.S. stocks over several recent time horizons.

This point is central to the credibility of the comparison: private real estate is not an asset class that automatically outperforms the stock market. Its relevance depends on the period, the real estate segment, the strategy, the leverage, and the entry price.

Real estate income plays a larger role in total return

The most robust difference is not necessarily in the total return, but in its composition. Rents account for a significant portion of real estate returns, whereas S&P 500 returns depend more on price appreciation and, to a lesser extent, dividends.

Why does the volatility of private real estate appear lower?

Brookfield measures a 10-year annualized volatility of 5.4% for U.S. private real estate, compared to 15.7% for U.S. stocks as of the end of 2025. This difference is real in the observed data, but it should not be interpreted as a direct measure of economic risk.

Part of the gap comes from the valuation method. A stock index reacts to new information in seconds. A private real estate asset is generally revalued at regular intervals. Variations are therefore less frequent and may appear with a lag.

Added to this is the nature of the income. Multi-year leases can make cash flows more predictable than stock prices. However, if an asset loses a major tenant, needs to refinance its debt, or must be sold in a poor market, the risk can materialize abruptly.

Good to know
Volatility measures observed fluctuations. It does not directly measure liquidity, default risk, refinancing risk, or the difficulty of selling an asset. An investment can therefore appear stable while still carrying significant risks.

Diversification: what does a correlation of 0.06 really mean?

Invesco calculates a historical correlation of 0.06 between U.S. private real estate and U.S. stocks from 1996 to 2025. A correlation close to zero indicates that the two series have historically moved largely independently of one another.

This low correlation can be beneficial for a portfolio heavily exposed to equities, as the performance drivers differ. Rents, occupancy rates, leases, and local real estate supply do not react in the same way as the earnings and valuation multiples of S&P 500 companies.

However, we should avoid calling it total decorrelation. A sharp rise in interest rates can affect equities, real estate, bonds, and financing costs simultaneously. Diversification reduces certain risks, but it does not eliminate them.

Inflation and interest rates: why real estate can be helped by one and penalized by the other

Rents can benefit from indexation clauses or be adjusted upon lease renewal. Over the long term, this can help real estate income keep pace with some of the inflation.

But high inflation can also lead to higher interest rates. Real estate is sensitive to the cost of debt and the capitalization rates used to value assets.

The 2022-2024 period clearly demonstrated this: some rental income continued to grow while real estate valuations suffered from rising rates and more expensive financing.

Investors should therefore avoid the shortcut that "real estate equals inflation protection." The correct interpretation is more nuanced: some assets have pricing power, but their value remains sensitive to interest rates, debt levels, and their ability to maintain rental income.

Core, core+, value-add, opportunistic: four profiles of real estate private equity

The term real estate private equity covers very different strategies. They do not seek the same level of return or the same level of risk.

This framework is essential for comparing two funds. A core fund and a value-add fund may both invest in private real estate, but their behavior, debt levels, and performance dispersion can be very different.

In a value-add approach, the manager's ability to execute the business plan becomes particularly important: buying at the right price is not enough; you must also succeed in renovations, leasing, and the exit.

What are the main risks of real estate private equity?

Private real estate has a specific risk profile. The fact that an asset is not publicly traded does not protect it from a drop in value or poor execution.

Liquidity risk

Capital can be tied up for several years. An early exit may be impossible, limited, or executed under less favorable conditions.

Interest rate and refinancing risk

An increase in the cost of debt can reduce cash flow and equity value. The maturity schedule, debt-to-equity ratio, and interest rate hedging are therefore key elements to analyze.

Real estate risk

Vacancy, falling rents, unforeseen construction work, obsolescence, regulatory changes, or a decline in local demand can affect an asset's performance.

Execution risk

In a value-add strategy, performance depends on the ability to manage renovations, reposition the asset, lease the space, and exit at the right time. A business plan that is behind schedule or over budget can significantly reduce returns.

Valuation risk

Assets are valued periodically. A published value may therefore reflect new market conditions with a certain time lag. The lack of daily pricing does not mean there is no risk of loss.

For the Makers Fund vehicle, specific risks should be reviewed in the regulatory documentation.

Real estate private equity or S&P 500: what role in a portfolio?

Comparison is more useful when linked to a concrete need rather than a performance ranking.

For many portfolios, the question is not whether to replace the S&P 500 with private real estate. It is rather about determining whether a private real estate allocation can complement liquid assets without creating an excessive level of illiquidity.

Simulation: understanding the impact of time horizon and compounding

The following simulation is intended solely to visualize the mechanics of compound interest. It does not represent a target return for private real estate, nor a forecast for Makers Fund.

At 8% per year, €10,000 theoretically becomes €21,589 after 10 years and €46,610 after 20 years. The calculation assumes that everything remains invested and reinvested. In a real real estate vehicle, rents may be distributed, capital may be called gradually, and assets may be sold at different times.

Good to know
In real estate private equity, the IRR can be more relevant than a simple annualized rate when there are multiple capital calls and distributions. The multiple of invested capital shows how much has been recovered relative to the capital invested, without taking time into account.

To test different amounts and time horizons, the Makers Fund simulator can serve as an educational tool.

How to analyze a real estate private equity fund before investing?

Before looking at the target return, several questions can help you better understand what you are actually buying.

This framework helps avoid a common mistake: choosing a fund solely because a target return looks attractive. A higher target may simply reflect a higher level of risk, leverage, or complexity.

Simulation: a 10-year club deal portfolio

A numerical example applied to private equity real estate club deals: 10 investment lines, exit and reinvestment cycles every 3 years, and the power of compound interest over 10 and 20 years. In each cycle, 1 out of 10 lines yields nothing, so the model incorporates a realistic risk factor.

• 10 investment lines
• 10%/year on performing lines
• Exit and reinvestment every 3 years
• 1 line at 0% per cycle (1 out of 10)
• 10 to 20-year horizon

The effect of compound interest — portfolio value (€1 invested)

Each exit is reinvested: 9 lines grow at 10%/year and 1 line remains at 0% per cycle. The portfolio thus grows by +29.8% every 3 years.

At each exit, all proceeds are reinvested into a new 10-line cycle, one of which again remains at 0%. The process repeats every 3 years.

What about over 20 years? The acceleration of compound interest

By doubling the horizon, the value does not double: it is multiplied by nearly 2.4. The +29.8% per cycle pace repeats, and compound interest does the rest.

Over 20 years, the portfolio reaches €56,837 (+468%), or 5.68x the initial capital. Relative to the initial investment, this is equivalent to an average of 23.4%/year according to the method presented in the source note, compared to 13.8%/year at 10 years.

The "average annual return" presented here corresponds to the cumulative return relative to the initial capital, divided by the number of years. For reference, the note indicates a CAGR of approximately 9.1%/year on capital and reinvested interest.

A purely illustrative simulation based on constant assumptions. It does not reflect the performance of any specific Mimco Capital product and does not constitute a guarantee of return. A 0% return here corresponds to capital preserved without gain; a loss of capital remains possible.

Where does Makers Fund fit into this logic?

Makers Fund is part of the unlisted real estate universe. To evaluate it, it is more relevant to look at its real estate strategy and how it is executed than to apply the average performance of an American index to it.

The challenge for the investor is therefore to understand the targeted assets, the level of transformation sought, the vehicle's horizon, the financing policy, and the main risks.

You can learn more about these elements on the page dedicated to the Makers Fund investment strategy.

This commercial section intentionally follows the comparison. The goal of this guide is first to provide the necessary tools to understand real estate private equity and determine whether this type of exposure has a place in your portfolio.

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