Although real estate valuations are at historical highs, the asset class could still be advantageous for investors. The large cash flow contribution to overall returns could provide for stable returns. In addition, recent changes to the code have improved the tax treatment for many real estate investors.
Sensible leverage could boost equity returns, as real estate continues to be an attractive asset class for lenders. Most property types allow for 70-80% leverage, with low interest rates and long amortization periods. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), based on data from 2018, the average return on private market commercial real estate was 9.85% for the past five years. These returns were achieved with low volatility relative to equities and bonds.
Over the long term, real estate investment returns have also been quite stable. Historically, income returns made up a sizeable portion of the long-term return from direct investment in private real estate, and have been relatively stable. This reduced volatility, compared to investments that rely more on capital appreciation. However, timing, geography and product type can make all the difference, and investors must be extremely cautious. Interest rate hikes are also a concern. However, with little sign of inflation and many Wall Street analysts forecasting cuts vs hikes, real estate executives continue to be bullish. In any case, a diversified portfolio is critical to guard against possible price depreciation, especially in a recessionary environment.
Castle Placement is currently raising capital for several clients in the real estate sector, including hotels, land acquisition, development, single-family, fix/flip, apartments, condos, self-storage, office, commercial, retail, etc.
About Castle Placement: Founded in 2009, Castle Placement raises equity and debt capital for private middle market companies across a broad spectrum of industries. Highly experienced investment bankers and a robust, data-driven, innovative technology platform – including artificial intelligence/machine learning – match great companies with global institutional investors. Castle Placement’s proprietary app, CPGO, connects companies with investors in real time. It has over 64,500 private equity, venture capital and strategic investors, family offices, pension funds, foundations, endowments, sovereign wealth funds, hedge funds and lenders.