This market cycle has been unique for a variety of reasons and constantly caught investors on the wrong-footed. Another unique aspect of the current market is the strong performance of private real estate while public real estate has languished. 

For Advisor Perspectives, Carlin Calcaterra and Brendan McCurdy of Ares Wealth Management Solutions investigate whether this is presenting an opportunity to buy the dip in public real estate or if this is a harbinger of weakness for private real estate. 

They use historical data as a guide and acknowledge that public real estate has delivered higher returns over the long-term. But, this is primarily due to higher amounts of leverage with public real estate. Adjusting for this factor, they believe that private real estate is the better investment from a risk/reward perspective.

They also believe that the data indicates low levels of correlation between public and private real estate. Therefore, these instances of divergence are not unusual and not necessarily predictive. 

In fact, 2 ⁄ 3 of the time that public real estate had more than a double-digit drawdown, there was no subsequent drawdown in private real estate. When there was a drawdown in private real estate, it often came at a nine to twelve month lag. This is notable given that the drawdown in public real estate began more than 18 months ago, and the asset class has been recovering in recent months. 

Finsum: A major market mystery is the significant weakness in public real estate while private real estate has continued to generate positive returns. Will this outperformance continue or is public real estate a leading indicator for private real estate?