Are Private Equity Real Estate Investments Less Volatile?

Posted on May 15, 2020

Are private equity real estate investments less volatile? We’ll give you the short answer: yes. While no investment is ever 100% risk-free or without ups and downs (certainly the real estate market is not immune to unsettled periods, as we well remember from 2008), compared to the stock market, you are relatively insulated. When you are considering your portfolio and asset allocation, private equity real estate opportunities can deliver solid performance while mitigating risk.

Boom Times Coming to An End?

It’s a law of physics – and the economy – that what goes up must come down. The US has experienced near-record stock market gains and economic growth over the last decade. This will not continue indefinitely, and, in fact, analysts already identify fault lines that indicate a decline. How much and how fast remains to be seen, but savvy investors are readying themselves. Investing in private equity real estate is a valuable risk diversification strategy.

A woman walking past a private equity real estate investment while looking at her mobile phone to check the performance of her investment portfolio

As mentioned, real estate is historically more stable than the stock market. Your risk of loss is also mitigated and minimized by the period of time you hold on to the property, and in boom times, you build equity on the increasing value. 

Stability In Real Estate 

Real estate is also a tangible asset: you can leverage it for revenue and take advantage of capital appreciation. Land, or property, has inherent value. It will always be worth something – as opposed to other investments that have little or no tangible value. Stocks can plummet to zero, for example, leaving you with nothing to leverage.

When the real estate market does experience declines, it always rebounds. Historically, this market has always recovered from bubbles, including, of course, the 2008 housing crisis. Since that period, prices have normalized and appreciation has grown.

Further, there are numerous tax benefits associated with private equity real estate investments, such as deductions on mortgage interest, depreciation, insurance, property taxes, and operating expenses.

Real Estate Equity Investment Risks

As mentioned – and it is worth repeating – no investment vehicle is without risk. In terms of real estate investment, these can include:

  • Tariffs. For example, a US-imposed 25% tariff on foreign steel drives the price up, resulting in higher construction costs. Some real estate projects may be sidelined as developers seek to reduce their exposure and risk. The same applies for construction labor shortages.
  • Contracting economies. This may prevent many landlords from raising rents or curb demand for commercial real estate.
  • Slower growth and higher interest rates. This leaves less capital to repay debts and fund new projects.

These risks can be countered by utilizing an experienced real estate investment and strategy firm with a track record of high-quality service and performing assets. As well, you will have the advantage of higher cash flows and dividends, higher debt service ratios, and tangible assets that are not offered with stocks or other investment options.

Bottom Line

Private equity real estate investments are less volatile and play a central role in risk diversification and strategic asset allocation. In unsettled markets, investing in this area is a smart, strategic play that can help you preserve wealth – and grow it.

Consider real estate equity investments in CGI Strategies’ properties. Our goal is to positively shape the future and cultivate a culture of innovation, trust, and high returns. Get in touch with our team today to learn more.

More CGI+ News & Press

Gidi Cohen’s CGI+ plans 20 stories of apartments in Hollywood

Gidi Cohen’s CGI+ plans 20 stories of apartments in Hollywood

CGI+, the investment and development firm founded by Gidi Cohen, has filed updated plans for a major apartment complex in central Hollywood. The project would be located at 1830 North Cahuenga Boulevard, at the corner of Cahuenga and Franklin Avenue, a prime Hollywood location a few blocks north of the Hollywood Walk of Fame.

read more
Best Bosses | Here are Real Estate Forum’s picks for Best Bosses in 2023.

Best Bosses | Here are Real Estate Forum’s picks for Best Bosses in 2023.

The last year has not been easy for the head of a commercial real estate company. Inflation and the Fed’s response, as well as trends that emerged from the pandemic, have clearly had an impact on the industry across all of the sectors. Besides the effect of, say, ongoing remote work on the beleaguered office asset class or the slowing pace of rent increases in multifamily, these executives have also had to navigate an increasingly difficult capital markets environment. I have some bad news for this group: the near-term future doesn’t look any easier. Enter our selection of Best Bosses this year. This year’s picks were made at least in part based on their resiliency and ability to position their companies for future growth, whenever that might occur. We are confident these strengths will see them through what could be choppy waters ahead.

read more