Displaying items by tag: private real estate

Asset managers believe the next two years might be ideal for investing in private real estate, despite recent market challenges. Clients are increasingly interested in risk-adjusted returns, prompting RIAs to explore private real estate opportunities. 

Core real estate, with its stable returns and lower leverage, is seen as favorable. Despite last year's focus on falling property valuations, sentiment is shifting as investors seek to time market entry. 

Private real estate offers attractive returns but requires patience due to slow cycles and the need for market stability. Potential buyers should be aware that the price gap between buyers and sellers remains a challenge.

Finsum: The old adage of buying the dip could be especially in play for this current moment in real estate.

Rising inflation and heightened borrowing costs are diminishing the appeal of leveraged private-market investments, but despite these challenges, institutional investors in the Asia-Pacific region remain committed to expanding their allocations in private assets, particularly in real estate and private debt, as highlighted in the firm's recent annual report. 

Among the 120 Asia-Pacific-based institutional investors surveyed, 58% anticipate further inflation escalation, while 65% express concerns about elevated borrowing expenses linked to inflation affecting leveraged private-market investments adversely.

However, amid these macroeconomic headwinds, financial institutions in the region remain bullish on private markets and are planning to boost allocations in the short and medium terms, with private debt emerging as a favored asset class.  The survey also indicated a growing trend of institutional investors allocating more than 30% of their portfolios to private markets, with approximately 64% planning to elevate their allocations to private real estate in the medium run.

Finsum: Private real estate could be posed for a comeback as interest rates fall and remote work becomes more sparse.

Based on research conducted by PGIM’s David Blanchett, Head of Retirement Research, and Sara Shean, the Global Head of Defined Contribution, there is a strong case that private real estate debt can be an effective source of diversification for fixed income portfolios, while also modestly boosting returns. It’s of increasing salience given that fixed income portfolios are once again a meaningful source of income for investors.

Blanchett and Shean conducted an analysis of various asset classes to determine how they would have improved the return and risk profile of a fixed income portfolio. They used the Bloomberg US Aggregate Bond Index as their benchmark. In addition to this benchmark and real estate debt, they also included emerging market debt, commercial mortgage-backed securities, leveraged loans, and high-yield bonds.

Interestingly, the benchmark had an annual return of 4% with a standard deviation of 4%. In contrast, private real estate debt had an annualized return of 6% with a similar standard deviation. The analysis also gives insight into the optimal weights of various asset classes in terms of impacting the efficiency of a bond portfolio. The biggest takeaway is that allocations to real estate debt led to a positive impact on risk and expected returns, leading to a higher risk-adjusted performance. 

Finsum: Research conducted by PGIM shows that private real estate debt can boost the risk and return profile of fixed income portfolios.