For returns , private real estate has produced a compound annual growth rate of 7.1 % since 2000 , much better than bonds ’ 3.9 % pace but slightly trailing stocks , at 7.7 %, according to J . P . Morgan Asset Management . However , with volatility closer to bonds , private real estate risk-adjusted returns were much higher than stocks or bonds , according to the firm .
“ The bulk of our exposure to real estate is in private investments because we believe the return profile is more attractive ,” says Kate Hall , vice president of internal due diligence at Carson Group , the giant Omaha , Neb . -based registered investment advisor .
At the same time , the fundamentals of commercial real estate in general are improving , with even the much-maligned office sector showing signs of turning around amid steadily increasing leasing volume , especially in big cities like New York City and for Class A properties in general . Occupancy rates are rising as more workers fill up once-abandoned cubicles .
Hall says these trends are moving in a positive direction , though there ’ s no “ allclear ” sign . “ These trends include the strength of the U . S . economy , constructive inflation data across input costs , wages and shelter as well as collapsing new supply , particularly in the industrial and multi-family sectors .”
Retail Investors Also Seeking Shelter
Often , real estate investment has less to do with numbers and more with emotion : People are putting their money in physical assets — warehouses , hotels , apartments , etc .— that they can feel and touch and easily understand .
Recently , retail investors are rapidly making their presence felt more in this booming asset class , which has traditionally been dominated by institutions and wealthy individuals . ( Invesco notes that institutional investors allocate 8 % to 10 % of their portfolio to real estate while individuals earmark 3 % or less .)
But the retail investor allocation to alts could grow sharply in coming years . J . P . Morgan Asset manages more than $ 400 billion in alts , and Treadway cites estimates predicting the amount of capital flowing into alts retail portfolios will rise to $ 24 trillion by 2028 from its 2018 level of $ 9 trillion .
Hall says the Carson Group ’ s model portfolio recommends an allocation of just under 20 % to private markets and puts the private real estate component at 3 % to 4 %.
Manager , Sector Selection Is Key
There are multiple ways of becoming a partial landlord or developer . Outside of directly investing in real estate with the typical 20 % down payment , investors can turn to real estate syndications , where an investor as part of a group buys part ownership of a property . ( These generally require $ 50,000 minimum investments , but some platforms allow you to be part of a pool of investors for much less .) Investors can also tap private equity and credit funds or invest through crowdfunding . lion in assets , notes on its website , “ Private real estate managers may have greater flexibility than public REITs to invest in areas of highest conviction and execute on complex transactions given they are less subject to public market forces .” For example , they are not required to meet quarterly earnings goals .
Sector selection is critical in any real estate investing . Hall says the Carson Group favors the industrial and multi-family sectors , noting that higher interest rates led to a lack of new building , which has caused supply issues . That means landlords will likely be able to raise rents . “ As we move through 2025 and 2026 , the ability of these types of properties to increase rents and thus net operating income should be fruitful for investors ,” she says .
Those higher rents will make private real estate a solid hedge against inflation ,
Outside of directly investing in real estate with the typical 20 % down payment , investors can turn to real estate syndications , where an investor as part of a group buys part ownership of a property .
Bert Crouch , North America head at Invesco Real Estate , says investors looking specifically for more income should consider private real estate credit . “ It ’ s the best of both worlds for real estate credit ,” he says . “ Higher interest rates plus historically wide spreads generate unusually high total returns and risk-adjusted returns for commercial real estate lending .”
Hall says that some investors should consider non-listed , perpetual life REITs that offer institutional-quality management of real estate assets but at smaller investment minimums — and with greater transparency and periodic liquidity .
Private market investors hope to outpace the returns of traditional investments , and for that they compromise on liquidity , since the monies in some cases can be locked up for some 10 years . It requires doing proper due diligence to pick the right active manager .
Blackstone , the world ’ s largest alts manager , overseeing more than $ 1 tril- too , says Tredway , who sees rents rising across his platform this year and next . Furthermore , he says , Americans ’ migration to the Sunbelt for better schools , weather and lower taxes will make single-family residential assets in that region one of his firm ’ s favorite sectors .
On the other hand , he ’ s more cautious about data centers , which he thinks could be hurt by the disruption in the artificial intelligence market after Chinese company DeepSeek introduced a cheaper AI model , one that rattled the stock markets earlier this year . Tredway favors more traditional real estate assets such as retail , multi-family housing or industrial and the “ best properties ” in the rebounding office space .
Don ’ t Forget REITs
As more eyes — and wallets — turn to private markets , there ’ s no need to kick real estate investment trusts to the curb ,
Continued on page 58
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