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Since late 2018, volatility returned to US equity markets after a long period of unusually low levels — and it has remained a disruptive force throughout 2019. A broad measure of volatility in the US stock market — the Cboe Volatility Index, or VIX — has ticked up in recent months.1 Investors are bracing for higher levels of volatility as several events loom prominently on the horizon, including trade war developments, corporate earnings reports, Federal Reserve rate-setting meetings, and economic data releases.

If equity market moves aren’t enough to make investors uneasy, the bond market has also been sending up red flags. In August, the 10-year Treasury yield traded at its lowest level since 2016, while the 30-year yield dropped below 2% for the first time in history. In addition, the 10-year Treasury yielded less than both two-year and three-month bonds.2 And while stocks have recently begun to hit highs again,3 these swings can have investors looking for a safe haven in an unpredictable market.

If you’re among them, we’ll explore in this article why you may want to consider adding commercial real estate to your portfolio. We’ll also illustrate why an investment in private real estate may be a better option than publicly traded real estate, such as REITs.

Opportunity for attractive risk-adjusted returns

Smart investors continually strive to capture the most attractive risk-adjusted returns, especially in the face of volatile markets and changing conditions. When it comes to meeting this objective, real estate has historically played an important role in a diversified investment portfolio for individual and institutional investors alike, as shown below. Private real estate has generated higher annual returns over the past 20 years than both US stocks and bonds, yet it has experienced significantly less volatility than stocks. Given this historical performance, it’s not surprising that institutional investors — who are among the savviest market participants thanks to their deep resources and knowledge — typically target a real estate allocation of 10-20%.4 Research findings back up this allocation decision. A 2013 study found that adding real estate to a portfolio with the traditional mix of assets both increased return and reduced volatility.5

Source: Predex, Bloomberg and NCREIF. Standard Deviation of Returns is defined as the first standard deviation of annual variance for the 20 years ended December 31, 2017. Private commercial real estate reflects the NCREIF Open-End Diversified Core (ODCE) Index through December 31, 2017. U.S. Bonds reflects the Barclays Capital Aggregate Bond Index, which covers the U.S. taxable investment-grade fixed-rate bond market. Stocks are represented by the total return of the S&P 500 Index.

Opportunity for diversification

Private real estate has a low correlation to listed REITs, US stocks and bonds, as illustrated below. A correlation of 1.0 means two assets move in lockstep; a correlation of -1.0 means they move in opposite directions; and a correlation close to 0.0 means they are uncorrelated. Adding a non-correlated asset class can bring stability to an investor’s overall portfolio — meaning private real estate can serve as a welcome counterbalance when public equities are volatile.

As of December 31, 2017. Indexes represented: Private real estate (NCREIF Fund Index–Open End Diversified Core Equity (NFI–ODCE), REITs (FTSE NAREIT U.S. Real Estate Index), US stocks (S&P 500 Index), US bonds (Bloomberg Barclays US Aggregate Bond Index).

The short-term volatility in REITs

For investors keen to take advantage of the potential benefits of real estate, there are two primary ways to establish exposure. The first option is to invest in public real estate, namely real estate investment trusts (REITs), which use pooled capital from its shareholders to purchase, manage and develop income-producing properties. Shares of publicly listed REITs are traded on major stock exchanges and are sometimes called “listed” real estate. Because investors own shares of a corporation or trust, this is known as an indirect form of real estate investment. The second option is to purchase a property or an interest in a property directly, known as private or direct real estate investing.

In addition, correlations between REITs and the broader equity market can skyrocket at times — for example, during the 2008-09 financial crisis. Market participants lumped REITs in with banking and financial stocks, which sold off heavily.6 Ultimately, the ability to buy and sell REITs on a daily basis makes them more volatile over the short term than private real estate. As such, for investors seeking to use real estate as a shelter from stock market volatility, private real estate may be a better fit.

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  1. Cboe,
  2. Barron’s, “Stocks Swing Wildly as Yield Curve Flips. Is There a Recession Out There?” By Ben Levisohn, August 16, 2019,
  3. Barron’s, “Stocks Are Hitting New Highs. The Yield Curve Might Be the Reason.” By Nicholas Jasinski, October 31, 2019,
  4. Hodes Weill & Associates
  5. The Journal of Index Investing, “Using Index ETFs for Multi-Asset-Class Investing: Shifting the Efficient Frontier Up” By Pankaj Agrrawal, Fall 2013,; as cited by The New York Times, “Real Estate Funds Have Been a Balm in a Stinging Market” By Tim Gray, January 11, 2019,
  6. Institutional Investor, “Despite REITs’ Virtues, Institutions Still Favor Private Real Estate Funds” By Julie Segal, April 30, 2013,
About the Author
Greg is a Managing Director on the investments team. Prior to Cadre, Greg spent 11 years at Dune Real Estate Partners, where he served as Partner, Managing Director, and investment committee member responsible for sourcing, executing, and managing a portfolio of distressed, value-add, and opportunistic investments across multiple asset classes in the United States and Europe. Before Dune, Greg was an Executive Director in Morgan Stanley's Real Estate Investment Banking Group. Prior to that, Greg worked in the Real Estate Investment Banking department of Merrill Lynch and as a financial analyst at Vornado Realty Trust. Greg has also served on the Board of Directors of NorthStar Realty Finance Corp (NYSE: NRF), a publicly-traded REIT. Greg holds an M.B.A. from the Leonard Stern School of Business at NYU and a B.A. from the University of Pennsylvania.
Educational Communication: The views expressed above are presented only for educational and informational purposes and are subject to change in the future. No specific securities or services are being promoted or offered herein. Performance Not Guaranteed: Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are not guaranteed and may not reflect actual future performance. Risk of Loss: All securities involve a high degree of risk and may result in partial or total loss of your investment. Cadre makes no representations, express or implied, regarding the accuracy or completeness of this information, and the reader accepts all risks in relying on the above information for any purpose whatsoever. These materials are not intended to provide, and should not be relied upon for investment, accounting, legal or tax advice. Additionally, these materials are not an offer to sell or the solicitation of an offer to buy any securities or other instruments. Actual transactions described herein are for illustrative purposes only, are presented as of underwriting and are not indicative of actual performance, and were selected based on objective, non-performance factors such as asset-type, geography or transaction date, among others. Certain information presented or relied upon in this presentation has been obtained from third party sources believed to be reliable, however, we do not guarantee the accuracy, completeness or fairness of the information presented.

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