Real Estate Private Equity vs REITs: Comparing Returns, Liquidity, Fees, and Control

REITs vs Real Estate PE: Structure, Fees, Returns

Real estate private equity funds pool investor capital into a manager-run vehicle that buys and improves properties or operating platforms, then sells or refinances them. Real estate investment trusts are corporations or trusts that own income-producing real estate and pay out most taxable income as dividends. Both give you exposure to property cash flows, but they reach that outcome through very different rules, economics, and reporting.

This guide compares the two in practical, investor-first terms. By the end, you will know which levers drive returns, liquidity, fees, and control, and how to pick the structure that matches your goals in 2025’s rate and liquidity regime.

Three trade-offs that decide most outcomes

Most REIT versus REPE decisions collapse into three linked trade-offs. If you calibrate these correctly, everything else tends to fall into place.

Liquidity vs control: Public REITs offer daily trading but limited asset-level control. Private funds are illiquid but allow negotiated governance and co-invest rights.
Fee stack vs alignment: REIT costs center on G&A or an advisory agreement. Private funds layer management fees, carry, and deal fees but can hardwire offsets and LP protections.
Appraisal smoothing vs mark-to-market: Private values update via appraisals that lag. Listed REITs reprice in real time and embed forward views on rates and rents.

Structures that shape strategy, governance, and cost

Structure dictates what you can do, how you disclose it, and how much it costs to run.

REPE fund forms and cross-border variants

In the U.S., real estate private equity funds are commonly Delaware limited partnerships or LLCs with a GP or managing member. Fund-level leverage is usually a subscription line; deal entities borrow with mortgage or mezzanine debt. Cross-border investors frequently participate via Luxembourg, Ireland, Cayman, or blocker entities to address tax and regulatory constraints. Delaware law often governs the fund while financing leans on New York law.

In the UK and EU, private funds marketed to investors fall under AIFMD, with updates phasing in that tighten loan origination and reporting for real estate strategies. These requirements influence permissible leverage and disclosure, and they add operational cost.

REIT formations and qualifying rules

U.S. public REITs tend to be Maryland corporations or statutory trusts because those statutes make REIT mechanics more predictable. They ring-fence properties into subsidiaries, yet they are not bankruptcy-remote like securitizations. REIT qualification relies on asset and income tests that constrain non-real estate activities and limit development exposure. In the UK and EU, listed property companies can elect local REIT regimes with broadly parallel rules.

How money moves: mechanics and flow of funds

REPE: capital calls, waterfalls, and information rights

Capital calls: Limited partners sign an LPA and subscription documents. Capital is drawn via notices, typically funded within 10 business days. Subscription lines secured by unfunded commitments bridge timing and can improve IRR optics.
Distribution waterfall: Priorities generally run management fees and expenses, return of capital, preferred return, GP catch-up, carried interest, and residual pro rata. Negotiated offsets can apply to portfolio-level transaction or financing fees. For mechanics, see a practical overview of the distribution waterfall.
Governance and reporting: LPs receive quarterly unaudited and annual audited financials, capital accounts, valuation memos, and asset narratives. LP advisory committees weigh in on conflicts, valuation methods, and key consents.

REITs: capital recycling, dividends, and investor controls

Public REITs: Companies raise equity and debt, reinvest retained cash, and pay dividends after operating expenses, interest, and capital expenditures. Debt covenants can trap cash or restrict distributions.
Non-traded REITs: Vehicles offer periodic share repurchases subject to caps such as 2 percent monthly or 5 percent quarterly of NAV. Boards can gate or suspend repurchases during stress; pricing often uses NAV net of early redemption fees.
Shareholder influence: Investors do not own specific assets. Control occurs via board elections and major votes. Externally managed REITs operate under advisory contracts that set fees and termination rights.

What actually drives returns

REPE funds earn from income, cap rate moves, development spreads, repositioning, and leverage. Value-add and opportunistic funds lean on execution and capital formation more than market beta, while core strategies emphasize stabilized income with moderate leverage.

REIT total return is dividend yield plus price appreciation. Investors track FFO and AFFO to compare cash flows across companies. For a deeper primer, see this explanation of FFO. Over time, AFFO growth, cost of capital, and accretive external growth drive multiples and compounding power.

Mark-to-market versus appraisal smoothing also matters. Listed REITs reprice continuously and incorporate rate and rent expectations. Private values update through appraisals that lag transactions, so reported returns tend to be delayed around turning points in rates and cap rates.

Benchmarks differ as well. The FTSE Nareit index includes towers, data centers, and storage, sectors with different duration and cyclicality than office or retail. The NCREIF ODCE index reflects core private funds with lower leverage and limited development. Comparisons without adjustments for mix and leverage can mislead.

Liquidity options and hidden costs

Public REITs: Intraday liquidity at market-clearing prices has option value. The trade-off is volatility and, at times, share prices below private NAV estimates, which can create public-to-private opportunities.
Non-traded REITs: Conditional liquidity via repurchase programs protects the vehicle but can lead to gates, queues, and cash drag as managers build buffers.
REPE funds: Closed-end funds offer no interim liquidity. Secondary transfers require GP consent and often clear at a discount in weak markets. Open-end core funds may allow quarterly liquidity, but redemption queues can form when appraisals lag.

Fees and alignment explained in plain numbers

Public REITs

Internally managed: Costs run through G&A. Investors evaluate G&A as a percent of equity or enterprise value and can underwrite it from filings.
Externally managed: Base and incentive fees are set by advisory contracts. Termination rights can be expensive, which entrenches advisers. The advisory agreement is the platform’s economic engine.

Non-traded REITs

Upfront loads: Selling commissions, dealer manager fees, and offering costs reduce initial NAV. Newer share classes and institutional channels can lower or eliminate loads, so review the fee table.
Ongoing fees: A management fee of roughly 1 percent to 1.5 percent of NAV, performance participation over a hurdle, and potential affiliate fees for property services are common. Early redemption fees may apply.

REPE funds

Management fee: Core to core-plus funds often charge about 0.75 to 1.25 percent on NAV or invested capital. Value-add to opportunistic typically charge 1.5 to 2.0 percent on commitments or invested capital during the investment period, with a step-down after.
Carry: A common model is 20 percent over an 8 percent hurdle with a 100 percent catch-up, subject to clawback. Transaction and financing fees at the asset level may be credited against management fees, depending on the LPA.

Simple illustration

A 100 million dollar commitment to a value-add fund charging 1.75 percent on commitments for four years implies about 7 million dollars in fees before step-downs, excluding carry. At 1.8x gross MOIC, 20 percent carry over an 8 percent hurdle can take the net MOIC to roughly 1.5x depending on fee offsets and timing. A 100 million dollar allocation to a non-traded REIT with 10 percent upfront costs, a 1.25 percent management fee on NAV, and 12.5 percent performance participation starts at 90 million dollars NAV; incentives crystallize per the prospectus. For background on private fund structures and fees, see these overviews of real estate private equity and structures and strategies.

Control and governance levers you can actually pull

REPE LPs: Investors can negotiate LPAC seats, key-person protections, concentration limits, co-invest rights, and removal mechanics. Conflicts, term extensions, and valuation methods often require LPAC consent. MFN side letters align terms across investors.
Public REITs: Shareholders elect directors, vote on major deals, and can run proxy contests. Boards drive capital allocation; management runs the business. Staggered boards and rights plans raise the bar for hostile outcomes.
Non-traded REITs: Governance leverage is limited. Sponsors and affiliates control many levers and redemption programs operate at board discretion.

Leverage, capital stack, and refinancing risk

Property-level mortgage and unsecured debt drive most risk. Public REITs disclose leverage quarterly and often use unsecured platforms with covenants that limit secured borrowing. Many termed out fixed-rate debt before rate hikes, which supported interest coverage through 2024.

REPE managers tailor leverage at the deal level with construction loans, mezzanine debt, and cross-collateralized pools. Cross-collateralization smooths outcomes until it does not, because defaults can travel across the pool. Subscription lines add modest structural leverage to smooth capital calls.

Reporting, valuation, and tax basics

Accounting and valuation

Public REITs report under U.S. GAAP with assets at depreciated cost and supplement with FFO and AFFO. Investors typically receive segment data, same-property metrics, leasing spreads, and NOI bridges. Private funds typically apply ASC 946 and mark investments to fair value, supported by third-party appraisals or manager estimates. IFRS filers often carry investment property at fair value through profit and loss, which reports more valuation volatility than U.S. GAAP cost accounting. Appraisal frequency and methodology shape reported NAV and must be tested against transaction evidence.

Tax treatment

REITs avoid entity-level corporate tax if they meet asset, income, and distribution tests. Dividends to U.S. investors are usually ordinary income with a possible 20 percent deduction. Foreign investors rely on treaties and statutory exceptions, and shareholder concentration and FIRPTA rules apply.

REPE funds are pass-throughs. U.S. taxable investors receive K-1s with income and depreciation allocations. Tax-exempt investors watch for unrelated business taxable income when leverage is used and may prefer blockers. Non-U.S. investors face ECI and FIRPTA unless the structure addresses them, often via domestically controlled REIT blockers or treaty planning.

Regulatory focus areas in 2025

Public REITs file 10-Ks, 10-Qs, and 8-Ks and operate under Regulation FD and exchange rules. Offerings often use Form S-11. Related-party transactions and non-GAAP metrics draw scrutiny.

Non-traded REITs register with the SEC and distribute through broker-dealers and RIAs. Share classes, fee loads, and redemption plans require careful review. Boards can suspend repurchases in adverse markets, so investors should build liquidity plans accordingly.

REPE advisers register with the SEC or states unless exempt. Although the Fifth Circuit set aside the SEC’s 2023 private fund adviser rules in 2024, examinations remain focused on fees, valuation, and conflicts. The Marketing Rule applies to performance advertising across private funds and non-traded REITs. The Corporate Transparency Act now requires beneficial ownership reporting for many U.S. entities; registered issuers are exempt, but fund and property SPVs often are not.

Risks and edge cases you must underwrite

Valuation lag: Appraisals smooth volatility. Redemption programs priced off appraised NAV can misallocate value between staying and exiting investors when markets move fast.
Liquidity mismatch: Periodic liquidity against illiquid assets leads to gates, proration, and queues. Liquidity buffers reduce returns while cash sits idle.
Leverage and covenants: Floating-rate or near-term maturities without hedges raise refinancing risk. Unsecured REIT covenants can cap secured borrowing when flexibility is needed.
Fee layering and conflicts: Vertically integrated platforms and externally managed REITs can charge affiliates at multiple levels. Independent director approval, caps, and clear disclosure help, but terms vary widely.
Development and capex execution: Leasing, entitlements, and construction costs can swing outcomes. REITs face public discipline on pipeline size; private funds must enforce underwriting discipline internally.

When each vehicle wins

Maximize control with patient capital: REPE funds, separate accounts, and club JVs let you negotiate governance, co-invest, and target sectors the market underweights. You accept illiquidity, a J-curve, and manager dispersion.
Maximize liquidity and transparency at scale: Public REITs deliver audited, frequent reporting, daily liquidity, and access to unsecured debt markets. You accept volatility and periods of trading below or above private NAV.
Seek income with limited governance burden: Non-traded REITs fit retail channels. You accept fee layers, board-controlled liquidity, and sponsor conflicts. Always read the repurchase plan, fee table, and related-party disclosures.

Implementation playbook and timing

Public REIT allocation: You can trade on the day you decide. Diligence governance, sector mix, balance sheet, FFO and AFFO quality, and capital allocation.
Non-traded REIT allocation: Subscribe through a broker-dealer or RIA. Suitability, KYC and AML, and share class selection drive timing. Expect T+3 to T+5 funding and build a liquidity plan around the repurchase program.
REPE fund allocation: Evaluate the track record, underwriting model, pipeline, LPA, and side letters. Focus on MFN, ERISA and UBTI representations, key-person, removal mechanics, and co-invest rights. Plan for 4 to 8 weeks from IC approval to initial close.

Quick kill tests before you commit

Near-term liquidity need: If you need assured liquidity inside 12 months, avoid closed-end REPE and be cautious with non-traded REITs.
Headline fees vs total cost: If headline fees are sub-1 percent but related-party fees are uncapped, model all-in fees before committing.
Refinancing risk: If floating-rate or near-term maturities lack hedges, haircut underwriting and review the maturity schedule line by line.
Governance friction: If a sponsor resists LPAC consent on conflicts or valuation, assume tougher outcomes in stress and seek independent valuation triggers.
NAV frequency vs liquidity: If liquidity is monthly but appraisals are quarterly, reconcile the mismatch and check NAV error and pricing policies.
Mixed investor base: If you have tax-exempt and foreign LPs, confirm blockers for UBTI, ECI, and FIRPTA and test expense deductibility.

Decision frame: returns, liquidity, fees, control

Returns: REPE offers wider dispersion and manager alpha through development and asset management. REITs provide listed beta with rate expectations embedded in prices. Private-core indices lag at turning points.
Liquidity: Public REITs are truly daily. Non-traded REITs are conditional. REPE is illiquid until distributions.
Fees: Public REITs charge through G&A and sometimes advisory fees. Non-traded REITs add upfront and ongoing layers. REPE charges management fees, carry, and transaction fees set by the LPA and side letters.
Control: REPE LPs can negotiate real governance. Public investors influence via the board and the market. Non-traded REIT investors largely delegate control to the sponsor.

Closing Thoughts

The practical answer in 2025 is rarely public or private. It is a mix that matches your objectives, constraints, taxes, and the rate and liquidity regime. Blend the price discovery and discipline of listed REITs with the operational alpha and structuring flexibility of private real estate. Decide your liquidity up front, not when you need it most, and archive diligence artifacts and legal redlines so future decisions compound your edge.