Published: June 13, 2007 in Knowledge@Emory
Despite the housing sector being shaken by a slowdown in residential sales and record defaults in sub-prime lending, commercial real estate investment remains strong. The industry—including lodging, multi-family, retail, office and industrial space—continues to earn healthy returns in the public markets through REITs (real estate investment trusts). Plus, private equity continues to invest in non-public REITS, syndicates, and limited partnership real estate deals. According to Roy Black, professor in the clinical study of finance at Emory University’s Goizueta Business School, real estate serves an important role in a mixed asset portfolio, particularly in institutional investments that also include stocks and bonds.
In Black’s new research paper titled “Real Estate in the Investment Portfolio,” he takes a look at the standing research to compile a comprehensive study of real estate as a diversification tool for the institutional investor. Black notes that his research is meant for financial professionals “who want to know more about the benefits of adding real estate to a mixed portfolio of investments.” According to the paper, actual investments in the U.S. totaled about $70 trillion in early 2000, with real estate and real-estate-backed assets making up approximately $30 trillion of “this investable capital, which also included stocks and bonds.” Black adds that real estate has a balancing effect on a portfolio, due to its negative or low positive correlation with stocks, making it a key part of a diversified portfolio.
