Private Real Estate Has the Potential to Help Investors Weather a Bear Market

After an 11-year bull-market run, the global Coronavirus pandemic has created extreme economic uncertainty.1

May 4, 2020

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Private Real Estate Has the Potential to Help InvestorsWeather a Bear Market

After an 11-year bull-market run, the global Coronavirus pandemic has created extreme economic uncertainty.1 With so much volatility in the marketplace, investors are looking for ways to better diversify their portfolios. Private real estate has historically delivered low volatility and strong diversification benefits.2 Additionally, over the last 40 years, only two out of the last five major recessions have corresponded to downturns in commercial property values.3 Thus, private real estate is potentially durable enough to ride out market downturns.


Benefits of Private Real Estate: Low Correlation and Low Volatility2

Over the last 20 years, private real estate has exhibited historically low or negative correlation to equities, bonds and publicly traded real estate investment trusts (public REITs),2,4 meaning private real estate is less influenced by market volatility. The physical assets that comprise an investment in private real estate are typically valued at certain intervals (such as monthly) based on property type, location, tenants’ creditworthiness, etc. Private real estate investments, unlike public REITs which are traded on an exchange, are not assessed based on a perceived value and are typically not affected by daily fluctuations in the stock market. Private real estate’s low correlation to other asset classes underscores the diversification benefit available to investors.

two graphics private real estate low volatility charts

 

Private Real Estate Has Historically Delivered Strong Risk-Adjusted Returns

A portfolio inclusive of private real estate has historically generated better risk-adjusted Annualized Risk-Adjusted Returns 20 years ended Dec 31 2019returns — or returns relative to the investment’s level of risk.2,5 Private real estate has delivered lower volatility, while providing higher annualized returns5 than equities and bonds, making its risk-adjusted returns historically more favorable than other asset classes.2,4

Private real estate’s risk-adjusted returns are more favorable to equities and bonds

Private real estate’s average risk-adjusted returns have been the highest over the last four decades compared to that of equities and bonds, demonstrating its ability to outperform through various market cycles.7

 

Private Real Estate: A Key Component of a Diversified Portfolio

Given private real estate’s typically lower volatility and low correlation to equities and bonds and higher risk-adjusted returns, we believe it should have a place alongside equities, bonds and public REITs in a diversified investment portfolio.

Black Creek Group, LLC (Black Creek Group) is a leading real estate investment management firm that has bought or built over $20 billion of investments throughout its more than 25-year history.8 The firm manages diverse investment offerings across the spectrum of commercial real estate — including office, industrial, retail and multifamily — providing a range of investment solutions for both institutional and wealth management channels. Black Creek Group has seven offices across the United States with approximately 300 professionals. More information is available at blackcreekgroup.com.

Learn more at blackcreekgroup.com.

 

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