Private real estate can provide significant and important benefits for a mixed-asset investment portfolio. Well-chosen portfolios have delivered attractive investment performance over long-term holding periods, providing high returns that have fallen between those of bonds and equities in the long term (1978-2010).
Over the past 10 and 15 years, private real estate returns have even outperformed the S&P 500, the Dow Jones Industrial Average, the Russell 2000, and the Barclays Capital Government Bond Indices. Moreover, private real estate has historically delivered high and steady annual income returns, with 6.9% average annual income returns for the period 2000-2010 and 7.7% for the period 1978-2010.
Private real estate has shown relatively low volatility, and has achieved among the highest risk-adjusted returns among the major asset classes over the past three decades (1978-2010). That means that for each unit of risk, it is estimated that private real estate has provided higher returns than stocks and public real estate, and has matched the bond index.
The low or negative correlations of private real estate returns with returns of bonds, equities and public REITs suggest that it can be an effective diversifier, leading to lower volatility of portfolio returns and enhanced returns for a given level of risk. It is particularly important in an increasingly unpredictable global economy.
We are in the initial stages of a cyclical recovery. We anticipate that the long-term benefits of private real estate will persist, which will benefit investors across the risk-return spectrum. (credit, d.lynn,nrei)