The slumping of the global financial crisis and real estate set off extensive risk-aversion among investors. By the time the worst of the crisis was over, investors and managers were tasked to vigilantly reappraise risks and revisit performance expectations of every asset class to be able to re-establish investment portfolios.
A mixed-asset investment portfolio can gain a lot from private real estate. Carefully selected portfolios have brought striking investment performance over long-term holding periods, thus, giving towering returns that have plunged between those of bonds and equities in the long term (1978-2010).
Private real estate returns have even outshined the performances of S&P 500, the Dow Jones Industrial Average, the Russell 2000, and the Barclays Capital Government Bond Indices over the past 10 and 15 years. Also, private real estate has brought soaring and stable annual income returns ever since. For the period 2000-2010, it has delivered 6.9% average annual income returns and for the period 1978-2010, 7.7%.
Private real estate has reflected relatively low volatility. It also has attained among the highest risk-adjusted returns among the foremost asset classes over the past 30 years (1978-2010). This means that for every unit of risk, it is projected that private real estate has given higher returns compared to stocks and public real estate, and has harmonized the bond index.
Private real estate returns with returns of bonds, equities and public REITs’ low or negative correlations imply that it can be a helpful diversifier, and in effect, precipitating volatility of portfolio returns and improved returns for a particular risk level. Experts consider this as particularly essential in a gradually erratic global economy.
The nation is going through the early stages of a cyclical recovery. The persisting of private real estate’s long-term benefits, which will benefit investors across the risk-return spectrum, is projected.