Calculating and Presenting Real Estate Fund IRR: Gross vs. Net, Property-Level vs. Fund-Level

When quarterly reports go out, few metrics generate more LP scrutiny than IRR. The challenge for real estate fund operations teams lies not just in calculating the number accurately, but in presenting multiple IRR variations that tell a coherent story, without creating confusion or compliance headaches.

What's the Difference Between Gross and Net IRR?

Gross IRR measures investment performance before fees and expenses. Net IRR reflects what investors actually receive after deducting management fees, fund expenses, and carried interest (the GP's share of profits above a stated hurdle).

The distinction matters because the spread between these figures can be substantial. A fund showing 18% gross IRR might deliver 14% net IRR to LPs once the typical "2-and-20" fee structure flows through the waterfall.

• Gross IRR: Property-level cash flows only; primarily used by investment committees and deal teams

• Net IRR: All fees, expenses, and promote included; the figure LPs see in marketing materials and quarterly reports

Why Does Property-Level vs. Fund-Level Matter?

Property-level IRR isolates individual asset performance, useful for evaluating deal selection and asset management execution. Fund-level IRR captures the full investor experience, including:

• Timing of capital calls and distributions

• Uninvested capital (cash drag)

• Subscription line impact on return timing

• Recycling provisions

A $250M value-add fund might show strong property-level gross IRR of 22% across its portfolio, while fund-level net IRR comes in at 15% due to deployment pace and fee load.

How Do Subscription Lines Affect the Calculation?

Subscription credit facilities, loans secured by LP commitments, allow funds to close acquisitions without immediately calling capital. This compresses the time between capital deployment and distributions, often boosting reported IRR.

Recent SEC guidance has sharpened expectations around disclosure. Funds presenting gross IRR calculated without subscription line impact typically need to show net IRR on the same basis. Many funds now report four variations: gross and net IRR, both with and without subscription facility effects.

What Should the Reporting Package Include?

Comprehensive investor reporting commonly presents:

• Fund-level gross and net IRR (since inception)

• Property-level returns for realized and unrealized assets

• Attribution analysis showing fee impact

• Clear disclosure of subscription line treatment

• Time-weighted returns for open-end structures

The goal is giving LPs enough granularity to evaluate manager skill while maintaining consistency across reporting periods.

Real estate fund IRR calculations require coordination across accounting, investor relations, and often third-party administrators. Establishing clear policies on calculation methodology, and documenting them in fund governing documents, reduces friction at audit time and builds credibility with sophisticated institutional investors reviewing performance against peer benchmarks.