Investors may assume funds launched at the bottom of the market achieve the most compelling returns over the subsequent cycle; but historically some of the strongest returns have been generated by funds launched in years where property values are still declining¹.

A key reason is a consistent disconnect between appraised and actual transaction values during any given downturn, allowing funds to achieve “market beating” returns on those discounted opportunities.

While this analysis focuses on the US, the findings may have application to real estate investment experience outside the US. In all these property markets, US and outside the US, private real estate values are appraised. It is likely that during inflections in the market, appraisals lag actual market values for transactions, both on the downcycle and upcycle. It is likely that shared phenomenon that explains, at least partially, why funds launched even during periods of falling appraisal values have historically achieved competitive and often cycle-leading returns.