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Written by: Todd Schriber | Advisorpedia
Amid rising interest rates in the U.S., the rate-sensitive universe of publicly traded real estate investment trusts (REITs) is languishing this year.
That’s a potentially thorny issue for advisors that have long turned to real estate as an avenue for buffering client portfolios against inflation because the Consumer Price Index (CPI) resides at 40-year highs, based on data by the U.S. Bureau of Labor Statistics.
Fortunately, advisors still have compelling real estate resources to discuss with clients, including private commercial real estate. CrowdStreet Advisors, a wholly-owned subsidiary of CrowdStreet, provides advisors with an efficient avenue to growth-focused private commercial real estate strategies like multifamily, industrial, and life sciences – something that’s long been missing from the advisory industry.
“CrowdStreet Advisors specializes in middle-market private commercial real estate investing. We develop investment products and service solutions to help advisors mitigate the effects of inflation and meet a broad range of investment objectives for their clients, including diversification, growth, and income,” according to the firm.
Moreover, private commercial real estate is a relevant consideration for clients in the current environment with an eye toward 2023. Here are a few reasons why.
Growth of Private Market Investing
Including commercial real estate, the investable private market is expected to experience exponential growth in the years ahead, according to recent research presented in the Thoughts on the Market podcast by Morgan Stanley. Importantly, it’s also becoming increasingly democratized, meaning accessibility is improving, thanks to firms such as CrowdStreet Advisors.
Indeed, the opportunity set here is massive, particularly as more advisors and clients gain more know-how.
“First is democratization of private markets that we think can spur retail growth and unlock a $17 trillion addressable market or TAM,” according to Morgan Stanley research. “This is the single largest growth contributor to our outlook. Product development, investor education and technological innovation are all helping unlock access here as individual investors look to the private markets for income and capital appreciation in addition to a smooth ride with lower volatility versus the public markets.”
Potential to Mitigate Inflation
As noted above, the broader real estate sector is known for offering the potential to mitigate the effects of inflation, but those benefits are arguably amplified when examining commercial real estate, including the private market.
That trait could enhance the relevancy of the CrowdStreet Advisors platform today, because economists and the Federal Reserve consistently misjudged inflation, indicating it could be some time before it eases in the U.S.
“Most important is the structure of leases which often includes step-ups in rent over the term of the lease. The most inflation protective step-ups would call for explicit indexation to inflation,” notes the Real Estate Counselors. “Even without step-ups, leases have a specified term calling for a new rent contract upon renewal. If the local property market does not have a supply glut at the time of renewal, the adjustment in rent is, at a minimum, likely to catch up to inflation. Shorter-term leases can catch up more quickly than longer-term ones.”
Good Time to Access Quality
Owing to the aforementioned weakness in the real estate arena this year, some high-quality, income-generating segments are as attractive as they’ve been in some time.
“These sectors include residential rentals, industrial, wireless towers, data centers, grocery anchored shopping centers, life sciences-oriented office and self-storage,” notes UBS.
CrowdStreet Advisors helps advisors access some of those niches, which generally include fundamentally sound firms with sturdy balance sheets and potential to deliver income for clients.
Kicking Correlations to the Curb
“Private real estate can offer diversification benefits— which is a key reason why it has been shown to boost risk adjusted returns. Over the past 20 years, private real estate has exhibited low correlations with stocks and bonds,” according to Brookfield Oaktree.
Through 2021, private commercial real estate displayed a negative correlation to U.S. Treasuries and a surprisingly low correlation to publicly listed real estate assets.[1]
At a time when equities and bonds are falling in unison and correlations among traditional asset classes are elevated, advisors need all they can get when it comes to potentially reducing correlations within client portfolios. Private commercial real estate may be a viable consideration.
For more information about CrowdStreet Advisors, please visit their website.
Advisorpedia is a third party advertiser for CrowdStreet Advisors. The statements made herein are made solely by the third party and are based solely upon the opinions of Advisorpedia. All information contained is obtained by Advisorpedia from sources believed by Advisorpedia to be reliable. CrowdStreet Advisors or its affiliates do not warrant, express or implied, the accuracy, timeliness, or completeness, of this information. Under no circumstances shall CrowdStreet Advisors or any of its affiliates have any liability resulting from the use of any such information. Nothing herein should be construed as an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet Advisors or otherwise. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance or success. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate.
CrowdStreet, Inc. (“CrowdStreet”) offers investment opportunities and financial services on its website. Advisory services are offered through CrowdStreet Advisors, LLC (“CrowdStreet Advisors”), a wholly-owned subsidiary of CrowdStreet and a federally registered investment adviser. CrowdStreet Advisors provides investment advisory services exclusively to privately managed accounts and private funds and does not otherwise provide investment advisory services to the CrowdStreet Marketplace or its users.
[1] Private real estate is, by nature, generally less volatile than the stock market. This lack of volatility does not necessarily translate to private real estate not fluctuating in or losing value. Further, the value of private real estate investments will fluctuate, and the value of real estate often lags behind general market conditions.