Constructing Diversified Real Estate Portfolios
For the past few years, institutional investors have allocated from 8% to 10.5% of their investments in real estate. However, allocation in real estate portfolios is still lagging in the short term, according to panelists at the recent Global Leaders in Real Estate Summit West in San Francisco. Hosted by EisnerAmper and iGlobal Forum, the conference brought together real estate thought leaders Robert Schweizer, Virtus Real Estate Capital; David Madrid, Highmore; Heinz Blennemann, Blennemann Family Investments; and moderator Alexander J. Pugh, Lubin Olson to discuss notable investment trends.
Institutional investors are not solely looking for a highest rate of return this year. Instead, they are looking for a sustainable return over a longer period of time, while maneuvering ever-changing risk factors such as currency, inflation and the economy. Having a steady return can help reduce the risk to a portfolio. To further minimize risk, it is important to assemble a portfolio with (1) a correlation to market trends; (2) diversification; (3) investments unlikely to move in the same direction; and (4) lease payments being collected while waiting for the assets to appreciate.
Core and secondary city investments are becoming of increasing interest to institutional investors who wish to capitalize on unique trends: unsophisticated assets such as parking lots, student housing and so forth.
Other worthy investments include non-core, niche opportunities, such as applying technology to real estate to gain a competitive edge. Although many opportunities are present, it is still challenging to get good investments at the right price in the current market. As such, evaluating the potential for sustainable returns is now more important than ever.