It’s not surprising that real estate investment trusts (REITs) have endured a brutal bear market given the combination of rising rates and recent bank failures which have led to tighter credit conditions. In a recent Benzinga article, Kevin Vandenboss discusses why private real estate has performed much better.

As a result, the Real Estate Select SPDR Fund (NYSE: XLRE) is down 28.7% from its 2021 high, while the S&P 500 is down 19.6%. This underperformance has intensified in the past month with the Real Estate Select SPDR Fund down 5.2%, while the S&P 500 is up 1.4%.

Interestingly, private real estate has performed substantially better with many investments continuing to deliver positive returns. One factor is the reduced use of leverage which leads to more resilience during downturns. Another is being removed from the pressures of public markets and quarterly results often leads to better decision making.

Therefore, investors, who are interested in real estate, should consider this asset class as it can generate positive returns even during periods of poor stock market performance unlike REITs. Private real estate funds are able to focus on particular segments which remain in growth mode even amid adverse economic and financial conditions.

Finsum: REITs are mired in a bear market and their performance has worsened amid recent bank failures and the Fed’s hawkish policy. Yet, private real estate has outperformed and continues to deliver positive returns.

According to analysis by S&P Global Market Intelligence, U.S. equity REITs have little direct exposure to Silicon Valley Bank, which had the second-largest bank failure in U.S. history. Office REIT Cousins Properties Inc. reported Silicon Valley Bank as its ninth-largest tenant by annualized rent as of 2022 year-end at just over $8.4 million, or roughly 1.2% of the REIT's total rental portfolio. The REIT leases 204,751 square feet of office space to the bank at its Hayden Ferry property in Tempe, Arizona. Boston Properties Inc. houses Silicon Valley Bank's Seattle office in its recently acquired Madison Centre property. In addition, Paramount Group Inc. leases office space to SVB Securities LLC, an entity under the SVB Financial Group umbrella, at 1301 Avenue of the Americas in Manhattan, N.Y. Alexandria Real Estate Equities Inc. reported in a March 13th news release that it has one lease with an affiliate of Silicon Valley Bank in the Greater Boston area market totaling 32,152 rentable square feet. The lease's annual rental revenue as of Dec. 31st, 2022, was $1.7 million, or 0.08% of the REIT's total annual rental revenue.

Finsum:According to S&P Global Market Intelligence, U.S. REITs had limited exposure to Silicon Valley Bank, with some REITS reporting that SVB made up a small percentage of their rental portfolios.

Technology-driven real estate investment manager Cadre recently announced the launch of an individual retirement account (IRA) solution, allowing investors to allocate their IRA funds into commercial real estate (CRE) through the Cadre platform. The firm expects the new investment option to continue to expand access to CRE, which is a tax-advantaged asset class with longer investment periods and attractive risk-adjusted returns relative to equities. The new product provides a solution for IRA investors who just experienced a challenging year in the market. CRE typically features more stability and longer holding periods than traditional IRA investments like equities. For instance, during recent market drawdowns like the Great Financial Crisis and Dot-Com recession, equities lost an average of 36% in value, while private real estate averaged a 31.86% gain over the same periods. According to the firm, this makes it a fit for investors hoping to harvest returns for retirement. Ryan Williams, Founder and Executive Chairman of Cadre stated, “I founded Cadre to provide more individuals with a tax-efficient tool that institutions and ultra-high-net-worth investors have traditionally used to build wealth.” By equipping investors with the ability to invest their IRA dollars, we aim to expand access to diversified, robust retirement portfolios – and by extension, generational wealth.”

Finsum:With investors experiencing deep drawdowns in their equity funds during market downturns, real estate investment manager Cadre has launched an IRA option for investors to access commercial real estate, which typically features more stability.

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