Unlocking Macro Real Estate Secrets

There are more than a few worrisome trends when surveying the current commercial real estate landscape. Headlines claim America’s biggest cities are hollowing out, everyone wants to work from home, and no one will ever shop at a store in person again. These issues suggest that vast amounts of commercial property values are at risk.

But while the pandemic changed attitudes and behaviors on many fronts, many of the fundamentals that have made CRE investing appealing historically remain intact. On a recent episode of The Yield Podcast, T. Richard Litton, Jr., President of Harbor Group, a global real estate investment manager, said “low rates and an abundance of capital has many investors looking at CRE opportunities through a short-term lens.” Investors, he added, should pay attention to recent headlines, but maintain a long-term view and carefully consider the fundamentals of CRE investments when allocating capital. 

Below we highlight three fundamental macro real estate “secrets” that investors might overlook when considering Commercial Real Estate during the long road back from the pandemic.

Macro real estate secret #1 – Investors continue to put money to work in CRE

With the rapid pace of economic recovery and an economy flush with consumer spending, commercial real estate continues to generate significant activity. Transaction volumes have yet to recover to pre-pandemic heights, but Iinvestors remain drawn to the yield and income potential of CRE. The asset class grew 11% in 2020 — to more than $4.1 trillion under management globally.1

As income-generating assets, commercial properties also continue to generate income and spin cash off to property owners — even during the downturn. During the depths of the pandemic, a combination of government subsidies, landlord forgiveness and lender flexibility helped tenants continue making mortgage payments, even when things looked most dire. The one-year annualized total return for commercial real estate was 2.6% at the end of the first quarter— which was low compared to pre-pandemic levels but hardly a reason to panic.2 While property valuations declined slightly, income remained a positive contributor to performance.

Macro real estate secret # 2 – Commercial financial conditions are favorable 

There is no shortage of cash-seeking yield in today’s financial markets. With the Federal Reserve committed to keeping key rates near historically low levels for at least another few years, investors will likely continue to seek out alternative sources of yield. Despite the future unknowns regarding real estate, the asset class continues to generate yields that are higher, on average, than many traditional asset classes. For example, at the end of May, U.S. commercial real estate yielded 3.9%, compared to 1.7% for the U.S. 10-year Treasury and 1.4% for U.S. equities.3

Low rates, demand for alternative yield, credit arrangements, and income-generating investments continue to support CRE as the world recovers from the pandemic.

Macro real estate secret # 3 – CRE’s liquidity premium pays off 

One of the primary benefits of investing in CRE is the liquidity premium investors expect to earn over other asset classes. In exchange for locking up capital for a specific period, investors generally expect higher yields versus more liquid investments such as publicly traded stocks and bonds. The illiquidity also helps keep investor emotions in check when markets become volatile. While stocks tend to swing wildly in response to headlines, CRE tends to stay more stable as investors cannot trade in and out of privately held CRE assets or funds daily. Real estate investors also tend to hang on to property for extended periods, preferring to sell when conditions improve. As a result, CRE trends tend to play out over a much longer-term cycle as compared to other asset classes, allowing for potentially smoother returns and less volatility. 

CRE’s biggest secret – longevity

While the world continues to recover from the damage created by the pandemic and investors assess what it means for the long-term prospects of their portfolios, CRE continues to exhibit the pre-pandemic fundamentals that made it an attractive asset class in recent years. Low interest rates, plenty of available capital, rising transaction activity, and income stability have contributed to a longer-term positive outlook. However, there are pockets of risk as the recovery will likely continue to be uneven and affect some sectors, industries, locations, and individual properties more than others. For example, while travel trends are ticking back up this summer, it remains to be seen if hotel occupancy will recover to pre-pandemic levels anytime soon. Office space is also a significant question mark. Office vacancy rates are lower now than after 9/11 and after the Global Financial Crisis in 2008-09, although that could change in the coming years as more companies adopt flexible work arrangements.

CRE has longer cycles than stocks and bonds, as gaps between peaks and troughs are far more expansive. It remains to be seen what the long-term impact of the COVID-19 pandemic will have on CRE, and all its sub-sectors, as many of these trends will take a long time to play out. In the meantime, investors should expect to continue earning a yield premium and regular income. 

Check out the recent episode of The Yield Podcast for more current market insights on CRE investing from Yieldstreet.

Please keep in mind that real estate investments, investments in Treasuries and equity investments each carry their own distinct set of risks and liquidity characteristics.  You consult a financial adviser or other professional adviser for advice specific to your situation.

Sources:

  1. Pensions & Investments, Global real estate AUM rises 11% in 2020 to $4.1 trillion – survey , 5/19/21
  2.  CBRE Research, http://cbre.vo.llnwd.net/grgservices/secure/Q1-2021-US-Capital-Markets-Figures_SECURE-FINAL.pdf?e=1626017211&h=2bb5f280a8f202ec1b391967d694a06f
  3. J.P. Morgan, Guide to Alternatives, May 31, 2021,
How helpful is this content?

Share this article:

Sign up for Yieldstreet in 3 easy steps

Sign up with your email address

Securely verify your identity and link a bank account

Verify your accreditation (if applicable) to access all of Yieldstreet’s offerings.

The Yield

Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.

Since inception, over $1.8B has been invested on Yieldstreet

Join today for free to access alternative investment opportunities.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest" or "Annualized Return" represents an annual target rate of interest or annualized target return and "term" represents the estimated term of the investment. Such target interest or target returns and estimated term are projections of the interest or returns and or term and may ultimately not be achieved. Actual interest or returns and term may be materially different from such projections. This targeted interest or returns and estimated term are based on the underlying investments held by the applicable.

4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.

5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.

6 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

7 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including Sept 6th, 2021, after deduction of management fees and all other expenses charged to investments.

8 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

300 Park Avenue 15th Floor, New York, NY 10022

844-943-5378

No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

Banking services are provided by Evolve Bank & Trust, Member FDIC.

Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure
Copyright © 2021 YieldStreet, Inc.