A 11% target IRR and a REIT paying 4%. What am I actually comparing?

I'd start by asking whether the 11% is before or after the platform's fees, because on the two offerings I read the target was stated gross and the fee schedule was on a different page.

ledger, I don't think you can put a number on the liquidity gap, and I've stopped trying. What I do instead is decide how much money I'm willing to not see for five to seven years, treat that as a separate bucket from the account I can sell out of, and then only compare deals inside the bucket against each other. The REIT and the deal aren't competing for the same dollar in my setup.

Does that dodge your question? Probably. But comparing a locked position to a liquid one in the same spreadsheet made me overrate the locked one every single time.

The comparison breaks down at three points, and it's worth being precise about each.

First, target versus realized. An 11% target IRR is a sponsor's projection built on assumptions about rent growth, exit cap, and hold period. A REIT's dividend yield is a payment that already happened. Comparing a projection to a realized figure will favor the projection every time. If you want the comparison to mean anything, ask the sponsor for realized IRRs on their closed deals against the original targets on those same deals, and compare that spread to the REIT's total return over a similar span.

Second, IRR is time-weighted on cash flows and is highly sensitive to when money moves. A deal that returns capital early can show a strong IRR on modest total profit, and a deal that defers everything to sale can show a weak IRR on the same profit. Your 1.5x equity multiple over five years is a cleaner statement of total dollars, and holding both numbers is the standard practice for exactly the reason you named.

Third, and this is the assumption the whole comparison rests on, IRR is usually quoted before the investor's own tax treatment and often before platform-level fees. Whether it is net of sponsor fees varies by offering, and you have to read the specific offering to know. The tax character of what you receive depends on the structure and your own situation, which is a question for your tax professional.

The liquidity difference has no clean number. You can sell the REIT at a price you may dislike. On a project-based deal with a two to seven year lockup you have no price and no exit at all until the sponsor sells.

The thing that got me was hold period slipping. A deal I'm in was underwritten to five years and the sponsor is now talking about seven. Same total dollars stretched over two more years turns a decent IRR into a mediocre one, and there's nothing I can do about it from where I sit. So when I look at a target IRR now I mentally add two years to the hold and see if I still like it. Most of them stop looking exciting.

thicket's two year haircut is the most useful thing in this thread. I do a rough version in small rural markets, where the exit buyer pool is thin enough that a slip is likely rather than possible.

I read this thread twice and want to check I have the basics right. IRR is a percentage that accounts for when cash arrives, equity multiple is just total dollars back divided by dollars in with no timing in it, and dividend yield on a REIT is annual payment divided by share price and says nothing about the share price going up or down. Is that all correct?

If so, then a 1.5x multiple over five years and a 1.5x over seven years are the same multiple and very different investments, which is what thicket was saying.

juniper, that's right on all three.

ledger, I hold land for long stretches and my answer to your question is that I compare the worst plausible case, not the target. On the REIT the worst case is I sell down 40% in a bad year and I have my money. On the five year deal the worst case is the sponsor loses the equity and I get a letter. Those aren't the same shape of loss, and no single comparison number holds both. I'd rather size the position so the letter version doesn't hurt me than find a metric that makes them look comparable.

I'll take the unglamorous side. I own the REIT because I understand what I own by Thursday afternoon and I can be wrong cheaply. The deal requires me to be right about a sponsor I've never met, on a projection I can't audit, with five years to find out. I'm not saying the deal is worse. I'm saying the amount of homework between me and an informed decision is completely different, and my homework capacity is the binding constraint, not my capital.