GreyBrook logotype
Investor Login Investor Login

Why Long-Term Private Real Estate Should Be Considered For Your Portfolio

日期:
6月 12, 2020
分享:

With equity market valuations at all-time highs and bond yields at historic lows, investors are left with few attractive choices to consider when it comes to allocating capital in their portfolios. The long-term outlook for equity returns from this level is challenging and bond investors face shrinking yields at a time when over $15 trillion of global debt trade with negative yields[1]. What other options do investors have to choose from?

Enter private real estate.

Investors can access private real estate investments in several ways, ranging from buy-and-hold “Core” strategies that seek stable cashflow over a long investment horizon, to “Opportunistic” strategies focused on generating significant capital growth through real estate development or asset repositioning. While private real estate may be an unfamiliar asset class for many individual investors, there are a few key reasons why investors should pay closer attention. Below we’ll take a look at why it might deserve a place in your portfolio.

Low correlation to other financial assets with potential for high absolute returns

From 2000 to 2017, private real estate funds focused on Opportunistic strategies in North America (i.e. development, asset repositioning, private debt and other special situations) produced an average annual return[2] of 12%, compared to a 6.9% average return that an investor would have realized by investing in the S&P 500 index (via the SPDR S&P 500 Index ETF) over the same time period. Notably, the average opportunistic real estate fund over this time period did not see substantial drawdowns that the S&P500 index suffered from 2000-2002 and in 2008.

The performance of private real estate investments tends to be more closely aligned with the value of the underlying asset and/or the value of the associated cashflow stream. Contrast this to public markets, which can be subject to extreme swings in investor psychology/sentiment, and indiscriminate selling during periods of volatility that can easily cause stock prices to be come detached from their underlying fundamentals and asset values.

An asset class that can be recession resilient

Multifamily apartment assets tend to be among the most recession resilient compared to other commercial real estate types such as industrial, office, or retail. During the 2001 recession, the cumulative rent decline for multifamily assets was 6.7% compared to industrial and office that declined 7.4% and 17.7% respectively. Not only was the total decline the smallest for multifamily, but the post-recession recovery was also the strongest with rents growing an average of 10% before the next downturn, compared to 4.3% for industrial and 5.7% for office buildings. Similar out-performance of multifamily real estate compared to other commercial real estate types during the recent 2008-2009 recession can be seen in the chart below[3].

While the impact of the COVID-19 pandemic is still yet to be fully understood, early indications suggest a similar level of performance with multifamily (and industrial assets) holding up the strongest, while many office and retail assets are suffering notable drops in rent and potentially in their asset value over time.  With housing being a fundamental need, multifamily assets are generally more immune to the same disruptive forces that have upended the retail segment over the past decade and may have similar impact on the demand for office space in the coming years, including changes in preferences among tenants, employers and consumers in response to either disruptive technologies or even pandemics such as COVID-19. In addition, tenant risk in multifamily assets is generally lower, with a larger and more diverse tenant base compared to other commercial real estate where a single tenant may occupy a substantial portion of the leasable area. One-year lease terms that are common in multifamily apartments also allow for rents to more closely track inflation, whereas other assets (office, retail, industrial) will have multi-year leases that typically renew every 3-5 years, thus limiting the ability for owners to match rent increases with annual inflation.

An investment strategy used by “smart money” institutional investors

Sophisticated institutional investors such as pension funds, sovereign wealth funds, insurance companies, and endowments typically have diverse portfolios that include not only equities and bonds (fixed income), but also alternative assets such as hedge funds, private equity, real estate, and real assets (infrastructure). Notably, the below survey of global institutional investors from investment manager BlackRock[4] shows a strong preference for rebalancing away from equities and fixed income and towards strategies such as real estate and real assets. The net change (percentage of respondents planning to increase their allocation, minus the percentage planning to decrease) was -14.1% for equities compared to 41% for real estate.

Importantly, the belief in real estate as a core component of a portfolio is not simply a temporary view among institutional investors. Preqin, a leading data provider for alternative investment professionals, produces an annual survey[5] of their global clients to uncover trends in capital allocation and highlight which asset classes are likely to be favoured by institutional investors. As the chart below shows, institutional investors have consistently expressed a preference to increase their real estate allocation over time. The most recent survey in November 2019 shows that 35% of investors are planning to increase their allocation, fives times the number of those planning to decrease their allocation over the long-term (7%). The annual survey results from 2014-2019 show a persistent bias towards allocating more capital to real estate over the long-term, highlighting the continued appeal of private real estate as an asset class among “smart money” investors.

With the potential for high absolute returns and low correlation to other assets, private real estate should be worth considering for many investors’ portfolios. Opportunistic strategies such as real estate development can also help provide capital growth, while selectively targeting multifamily developments can also position investors in an asset class that traditionally fares better through recessions compared to other forms of commercial real estate. Qualified Greybrook investors have the opportunity to incorporate one of the most popular institutional investment strategies in their own portfolios by investing in large-scale real estate development projects across North America.

Contact us to learn more or to speak with one of our investment representatives.


[1] https://www.bmogam.com/us-en/advisors/market-charts/global-negative-yielding-debt-has-reached-record-highs/

[2] Preqin, Weighted Average IRR performance of North American focused Opportunistic Real Estate funds, Vintage years 2000 -2017

[3] CBRE, “U.S. Multifamily Research Brief: Multifamily Most Resilient Property Sector to Recessions”, February 2019. (https://www.cbre.ca/en/research-and-reports/US-Multifamily-Research-Brief-February-2019)

[4] https://www.blackrock.com/institutions/en-us/insights/rebalancing-survey

[5] Preqin, “Alternatives in 2020: Preqin Global Alternatives Report”. 2019

溯源

最新洞察力

Brooklin Vue – 位於一個充滿魅力社區中的新住宅項目

Portfolio Updates
7月 21, 2025

Brooklin Vue是我們與Treasure Hill合作的開發項目,不久便…

House of Assembly入住啟動:Sterling Junction迎來新篇章

Portfolio Updates
6月 25, 2025

我們榮幸地分享,位於多倫多西區的House of Assembly(簡稱HOA)…

高博房地產向安大略省Brantford市一住宅開發項目投資 2247 萬元

Company News
6月 19, 2025

高博房地產今日宣佈,其旗下管理的發行方已成功完成2247萬元的股權投資。該筆資金…

《Boardroom Brief》第八集 — 以地理視角切入的投資策略解析

Insights
6月 16, 2025

當強勁的長期基本面遭遇短期經濟阻力時,會發生什麼?在“Boardroom Bri…

John Huffman speaking at the PCMA Annual Conference 2025

突破逆風:2025 年 PCMA 大會深度解析加拿大房地產潛在機遇

Community
6月 16, 2025

近期舉辦的PCMA 2025年度大會(加拿大私人投資領域頂級盛會),成為剖析20…

138 Yorkville 致敬永恆設計的藝術:《男人與他的腕表》—— 聚焦製錶大師 F.P. Journe

Portfolio Updates
6月 12, 2025

由高博聯合Cityzen與First Capital共同開發的超豪華住宅項目13…

從董事會到球場:高博歡慶 2025 年度夏季社交活動

Culture
6月 9, 2025

今年的夏日社交活動(Summer Social)大獲成功!活動在Rogers C…

高博團隊助力第四屆年度「Baycrest腦健康慈善騎行」活動

Community
6月 2, 2025

上周日,高博團隊成員自豪地參與了第四屆年度Baycrest大腦健康慈善騎行活動(…

高博與 PMG共同慶祝「Society Las Olas」二期項目順利封頂

Multi-Family
5月 16, 2025

高博與合作夥伴PMG欣然宣佈,Society Las Olas二期項目正式實現結…

《Boardroom Brief》第七集 — 蒙特利爾銀行首席經濟學家Douglas Porter解析大選後展望、貿易緊張局勢與加拿大房市前景

Insights
5月 8, 2025

在 “Boardroom Brief” 這一期特別節目中,我們誠摯邀請您收聽高博…

所有出版物

Join our newsletter and keep up to date with our news & insights

Contact us