Trends Watch: December 7, 2017

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman. 

This week, Elana talks to Matthew Adler, Founding Partner, Adler Kawa Real Estate Advisors.

Within a portfolio, what is an appropriate allocation to real assets?

It varies according to one’s liquidity needs, however a 15-20% allocation to real estate can lower volatility and provide a source of income to investors looking to add diversification to the traditional stock and bond portfolio.

What is your outlook for real estate?

I don’t believe there is one cycle that moves in unison. Multi-family residential is at a very different point than our product light-industrial. However, where we are in the “cycle” is less important than whether we can execute our strategy. As long as we can find cash flowing properties, purchased below replacement cost in areas with strong demographics, we will continue to invest profitably. Good risk-adjusted returns will be achieved through a diverse portfolio and an ability to add value through strong operations.

What is your outlook for the economy?

The U.S. economy seems poised to continue growing moderately. While we are seven years into the recovery, the pace of growth has been slow. At some point, there will be another downturn but generally, we are much more fiscally sound than prior to 2008. As an example, bank underwriting standards and regulatory oversight is far superior to pre-2008. While downturns are inevitable, hopefully enough lessons were learned during the Great Recession to avoid a repeat of that crisis.

What keeps you up at night?

Frothiness in public markets could lead to a correction that dents investors’ confidence and geopolitical events could derail the economic recovery, if the current saber-rattling results in more than just a war of words. Ultimately, I am not worried about the daily value of our assets. I focus on the health of our tenants, which eventually leads to growing cash flow and higher value.