New research in the hospitality sector tells us sector specialists outperform generalists by a wide margin.

Real estate private equity fund managers ain’t what they used to be: At the beginning of this century 20-30% of managers were sector specialists. Between then and now, that figure has doubled. However, even though most managers are specialists, most of the money actually flows to generalists: they are on average four times larger by AUM vs. specialist counterparts. But why do specialists perform better? And by how much?

New research shows that hotel-focused private equity managers outperformed generalists by 5.4 percentage points of annual NOI and 18 percentage points of capital gain over similar hold periods, which the authors helpfully point out, is “economically large.”¹

The headline outperformance is significant; how they made it happen is intriguing. There was no evidence specialists were better at driving top-line growth in hotels and in fact all of the specialists’ NOI improvements came from expense reduction. Specialists consistently drove down personnel, G&A, and even “non-controllable” expenses such as property taxes, demonstrating operational rigor that generalists could not match.

And that cost cutting, far from slashing-and-burning, is shrewd and highly calibrated. Using Tripadvisor data, the researchers found specialist-owned hotels saw a significant decline in guest experience ratings, indicating service quality went down, and while you would expect that to hit the P&L, there was no evidence of lower revenues under specialist PE ownership. In our minds this is very strong evidence supporting the core finding of the specialist advantage - it takes a pro to pull that off.

The two types of PE firms exhibited interesting differences, some of which the researchers - Christophe Spaenjers and Eva Steiner, professors at the University of Colorado and at Penn State, respectively - had to make adjustments for.

The specialist PE shops were inclined to put their skills to work: Relative to the generalist firms, specialists targeted larger and older assets more in need of repositioning. Specialists’ hotels were often independent and also more complex, with “higher expenses, lower profits, more diverse sources of revenue, and higher labor costs.” In the end the two investors often sought different acquisitions: “PE specialists seem to favor operationally more challenging hotels.”

The researchers controlled for all this in their study, using characteristics-matching and other methods to test performance differences in like-vs.-like hotels.

In addition, PE specialists were inclined to physically improve their properties more than generalists, but not too much. They were more likely than generalists to make alterations - including common area and F&B refreshes and repositioning larger guest rooms into basic ones - but not hotel conversions or additions. Our reading was these capital expenditures were targeted, high-ROI capital investments.

Stepping back, we all know hotels are operationally intensive. Successful hotel investment thus requires both great real estate investment skills and operational acumen. Were specialists just better at picking deals? No. The study looked specifically at generalist firms with a real-estate expertise and compared those to the hospitality specialists, finding that real estate investing skills do not drive the outperformance of PE specialist firms. Those with deep hospitality experience delivered outsized results.

Further study showed the individuals on the specialists’ leadership teams (unsurprisingly) were “more likely to have significant hotel-specific operating experience.” The data revealed a clear pattern: the more complex a hotel’s operations, the more operational know-how in the ownership drove higher performance. This all supported the idea that operational expertise is a “fundamental advantage” that drives performance.

The Learning: Specialization delivers outperformance in hospitality investing, full stop. We at the Haystack want to see this study applied to other real estate asset classes with operational complexity, like senior housing, gaming and health care. And we’re particularly interested in specialist multifamily owners and their potential outperformance. Although that asset class may have more limited complexity, small gains in revenue or operational efficiency drive dramatic changes in value, and it’s a lot more operationally complex than most investors give it credit for. Our hunch: operational expertise matters there too.

The Rake

Three good articles.

• When Will the Next Rate Cut Come? Later Than You Might Think, Say Economists - Globe Street

  Some economists now expect the Federal Reserve’s next interest rate cut to be delayed further than previously anticipated, citing recent volatility in trade and tariffs as key factors reshaping monetary policy forecasts.

• SF landlord sells stake in downtown building to lure tenants - CoStar

  Paramount has sold a stake in a downtown San Francisco office building as part of a strategic effort to attract tenants. This move reflects a broader trend among office landlords nationwide, who are seeking innovative capital and partnership strategies to reposition assets.

• U.S. Corporate Relocations Quintuple - BisNow

  U.S. corporate headquarters relocations surged in 2024, quintupling to 96 moves from just 18 the previous year, with Texas emerging as the top destination-accounting for nearly half of all interstate relocations. California saw the most departures, with 17 companies leaving (12 of them heading to Texas).

The Harvesters

Someone making real estate interesting. They don't pay us for this, unfortunately.

 Who: Hangar Club

What: The high-design brand’s indoor golf flagship is in Denver, with fancy simulators, full F&B, coworking and lounge space.

The Sparkle: Part of the secular trend toward experience, Hangar Club hosts dozens of weekly corporate and group events, but not for the reasons you might think. The space and the activity drive connection: “When we host groups, the talking part is a 10-to-1 ratio with hitting shots,” says the owner.

From the Back Forty

A little of what’s out there.

Stats geeks, you’ll like this one.

Did you know you’re more likely to die on your birthday? True, this shows “that mortality isn’t just about biology and random chance; it’s influenced by social constructs and personal significance.” You can read too much about it below, an entertaining and educational piece for stats-junkies, and non-stats-junkies alike. Shout out to The Pudding.

Link: https://pudding.cool/2025/04/birthday-effect/

Editor’s Note: The Real Estate Haystack believes in sharing valuable information. If you enjoyed this week's newsletter, subscribe for regular delivery and forward it to a friend or colleague who might find it useful. It's a quick and easy way to spread the word.

1  Christophe Spaenjers, Eva Steiner, Specialization and performance in private equity: Evidence from the hotel industry, Journal of Financial Economics, Volume 162, 2024,103930,ISSN 0304-405X. https://doi.org/10.1016/j.jfineco.2024.103930.