Benefits of Direct Real Estate Investment

Directly owned real estate assets offer numerous benefits with respect to generating current returns, growing capital, and preserving wealth.


Cyclical Defense
While equity and fixed income markets typically move in tandem with economic cycles, income from real estate assets benefits from multi-year leasing contracts. As a result, properties can generate steady and predictable revenue streams apart from the relative growth of the general economy. Experienced real estate investors assess the creditworthiness and predictability of a property’s income stream and adjust their pricing, return requirements, capital structure, and underwriting criteria accordingly.


“Inflation Protected” Investment Portfolio
Given its positive correlation with changes in the consumer prices, real estate investment can provide a partial hedge against inflation. As consumer prices rise, so do real estate cash flows and, typically, associated property values. Moreover, many commercial lease contracts are inflation-indexed, providing property owners with an additional layer of inflation protection.


Attractive Risk/Return Profile
The positive spread between core real estate yields and the benchmark 10 year U.S. Treasury is currently between 300 to 400 basis points. This spread offers investors an attractive risk “cushion” as well as more promising returns on both a current and total return basis.


Market Inefficiencies Create Opportunities
Market inefficiencies yield an abundance of value enhancement opportunities for private investors and their investment advisors with the information, discipline, and expertise to identify and capitalize on them.


Capitalize on Current Interest Rate Environment
Interest rates are currently near 40 year lows, and other alternative investment products currently offer historically low returns to investors. Within the real estate marketplace, however, debt capital remains available and well priced for sophisticated real estate market participants.


Consistent Performance
Real estate returns have been negative for a significantly lower proportion of time compared with U.S. stocks and bonds over the past 75 years.




Combine Strong Returns and Low Volatility
Direct ownership of real estate has the potential not only to reduce overall portfolio risk but also to contribute to improved portfolio performance with respect to risk. Portfolio managers use a tool called the Sharpe Ratio to measure the level of excess return an investment will yield for each additional unit of risk assumed. The Sharpe Ratios for multiple investment categories illustrate that direct real estate investments can generate returns that are comparable to those of stocks but with far less risk.