Opportunities for income: private real estate investments

Mark Earley, CEO, Hines Securities

Buildings and a plaza on a city street

Key Points

  • Private investments in real estate have historically offered income and diversification, while potentially lowering overall portfolio volatility.
  • The COVID-19 pandemic has reshaped the real estate landscape, which may bring opportunity to some sectors while creating challenges for others.
  • Your financial advisor can help you find strategies to help enhance portfolio income, diversification and total return within your risk tolerance.

In a balanced, long-term portfolio, private real estate investing may offer diversification and income potential beyond traditional stock and bond investments. This involves pooled ownership (with other investors) of a variety of large-scale real estate properties such as apartments and office buildings, domestically and internationally.

Current market challenges

The Commerce Department reported May 28 that real GDP shrank 5.0% for the first quarter of 2020.1 Moving forward, we expect to see high short-term volatility in equity and credit markets as the economic uncertainty continues.

Publicly traded real estate investment trusts (REITs) have exhibited a high correlation to the stock market. They have been more volatile than private real estate investments, whose share values are tied to fundamentals of the properties in the portfolio (as opposed to external factors in public equity markets).

Earlier this year, Vanguard’s traded REIT index, VNQ, demonstrated how publicly traded REITs can be more volatile than the market. From its high on Feb. 21 to its low on March 23, VNQ declined 42.8%.2 By comparison, the S&P 500® Index was down 31.8% over that same period of time.3

Private real estate, as measured by the NCREIF Fund Index – Open End Diversified Core Equity (NFI-ODCE), did not experience the same level of declines. For the first quarter of 2020, the NFI-ODCE total return was 0.98% gross of fees (this figure does not reflect the payment of investment advisory fees and other expenses which will lower the actual rate of return).4

A look at real estate sectors

Amid the COVID-19 outbreak, some global private real estate sectors — such as office, industrial and multifamily — may hold up particularly well. Other real estate sectors, however, face challenges. For example, according to the American Hotel & Lodging Association, the leisure and hospitality industry has been the hardest hit as travel has largely ground to a halt.5

As a result of the health crisis, more companies are relocating their manufacturing, warehouse and distribution properties closer to consumers. This pivot in global supply chains may favor the industrial sector.

The office environment is being reimagined as well, which may bolster facilities-management companies. Hoteling, or shared office space, will need to adapt. New health protocols around doors, elevators, conference rooms and restrooms will be critical considerations.

Considerations for private real estate investors

Investing in private real estate may offer long-term benefits, such as a higher level of income than other asset classes.6

In addition, although private real estate is less liquid than publicly traded real estate, it also is less susceptible to the market’s ups and downs. If suitable for your financial goals, risk tolerance and time horizon, private real estate investments may lower overall portfolio volatility, provide attractive total returns and allow you to participate in the recovery of different markets around the world.

Talk to your financial advisor

Continue to consider ways to diversify your portfolio, including holdings less correlated to the overall market. If you have cash available, that may mean starting to invest in private real estate patiently and over time. Speak with your Ameriprise financial advisor about your long-term investment strategy and the course of action that makes sense for you.  


1 https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-second-estimate-corporate-profits-1st-quarter

2 https://www.bloomberg.com/quote/VNQ:US


4 https://www.ncreif.org/news/odce-1q2020/


6 Sources: ICE Benchmark Administration retrieved from FRED, Federal Reserve Bank of St. Louis and MSCI, Inc. Data as of December 31, 2019.