Don’t Put All Your Eggs in the Stock Market Basket

basket(Thanks for putting up with my Easter pun.)  As a real estate investor, it’s time for a “feel good” reminder:

Commercial Real Estate (CRE) represents an attractive asset class.

Here are a few of the obvious reasons for some reinforcement:

Inflation Protection (with contractual rent increases, CRE can offer the perfect inflationary hedge

Long-Term Capital Appreciation (according to the National Council of Real Estate Investment Fiduciaries or NCREIF, CRE returns have outperformed the S&P 500 since the late 1970’s – ignoring the correction of property values in 2008-09)

Low Return Volatility (CRE can lead to more predictable, recurring cash flows – especially well-located properties having a stable roll-over schedule of creditworthy tenants on longer-term leases)

Diversification (CRE returns generally have a low correlation to stock and bond returns)

And for those of you who just can’t stay out of the stock market… Although 2013 was an exceptional year for the S&P 500 (32.7% return), equity REIT’s in 2014 are likely to outperform last year’s abysmal 2.7% return.  The threat of interest rate increases weighed heavily on the REIT sector in 2013, but these returns should improve with the focus now leaning on company earnings – which should lead to additional demand for space in markets with limited supply.

Here’s the Point: Over the long term, commercial real estate has proven to be a great inflation hedge and has provided low return volatility, diversification, and long-term capital appreciation.

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