Real Estate as an asset class
While stocks and bonds have their place as traditional instruments of investment, investors are increasingly considering alternative investments such as real estate, hedge funds, private equity and oil and gas programs - in an attempt to engineer enhanced performance of their portfolios. Historically, real estate has been relatively un-correlated to the broader stock and bond market. Said differently, investments in real estate may not fluctuate as much as other investments based on the broader stock market, and therefore real estate can help to diversify a portfolio. Real estate may provide an investor with the opportunity to earn current cash flow, while possibly serving as a hedge against inflation. We believe that real estate is an important component of any well diversified portfolio. We also believe that, unless investors have the experience and knowledge to actively manage real property assets, they will be better served investing with managers with a proven track record.
Is this the right time for real estate?
Knowing when to get into an investment and
when to get out is an important key to success.
Some may wonder if now is the right time to
get into real estate. While it is true that there
has been a general decline in real property
values, it is our view that we are approaching what we believe to be an opportune time for acquiring properties now.
The recent decline in prices makes it possible for savvy investors to acquire properties for considerably less than it would have cost in 2007, often at below replacement costs. We are also in a historically low interest rate environment. That means that one can borrow today at greatly reduced interest rates - among the lowest ever. Over the next few years, we believe several other events will occur that will make the opportunity even better. By 2013, an unprecedented number of securitized loans will be coming due at debt levels that will be difficult, if not impossible, to refinance. That should create a further buying opportunity for smart real estate investors. Additionally it is our view that based on a global sovereign debt crisis, governments will be forced to take actions which will result in an inflationary cycle in the mid-to long-term.
For all these reasons, we believe investors can acquire properties at great prices, finance them with low interest rate debt, improve the value of the rental stream as inflation starts to kick in, and then sell the assets at higher prices. If our view is correct, now is the time to be investing in real estate. As with most investments, real estate investments are subject to risks, including risks related to leverage, tenant nonrenewals, vacancies, inability to sell or refinance, and other risks.
In allocating a part of your portfolio to real estate, you should want to minimize the exposure of some of your assets to the volatility of other investments or securities. Non traded REITs, which are publicly registered but not exchange-traded do not experience the volatility of the broader stock market, and generally are intended to only reflect the value of the underlying real estate assets. However, the lack of volatility results from non-traded REIT shares having limited liquidity, and, because they are not traded on a securities exchange, are not subject to market valuation.
Real Estate Investment Trusts give multiple investors the opportunity to pool their funds to be professionally managed by real estate professionals, and as such an investment in a REIT is not a direct investment in real estate.
To discuss your unique needs and goals, please call Cabot Lodge Securities at 1.888.992.2268 or visit our contact page