In the last two years, registered investment advisors (RIAs) have been plagued by uncertainty and volatility while trying to protect principal and achieve returns for clients. To thrive amid these conditions, private real estate investments offer an opportunity for RIAs to generate compelling uncorrelated risk-adjusted returns. Following in the footsteps of family offices, which have long allocated funds to private real estate as a capital preservation strategy, RIAs will find this strategy can offer diversification, downside protection and a natural inflation hedge.
The Benefits of Private Real Estate Investment
Multifamily real estate is an attractive investment tool for RIAs, providing durable cash flow, a hedge against inflation and the potential for capital appreciation—particularly when researched, structured, and managed with a “total return” approach.
In our experience, investing prudently in a highly selective, diversified portfolio of multifamily properties can boost portfolio performance and provide downside protection. In the current market environment, high levels of uninvested capital, challenging debt conditions, and minimal transaction volume has created a window of opportunity. Investors with the flexibility to strategically structure investments and who have access to a large network of operator, broker, and bank contacts are well-positioned to pursue those opportunities at compelling historical valuations.
The underlying demographic fundamentals and demand drivers continue to support a high-conviction case for a long term view on multifamily investment for two key reasons:
- Chronic shortage of housing supply: New apartment construction has not kept pace with demand, contributing to a long-term housing shortage in the United States. Based on U.S. Census Bureau data, the nation is short 3.8 million to 6 million housing units to meet current demand.
- Rent vs. own equation tips in former’s favor: Renting continues to be the most affordable option for many U.S. consumers—as of Q1 2024, the national average monthly cost of homeownership is $1,005 higher. Gaining Control Through Private Real Estate To diversify into multifamily assets, RIAs have traditionally
Gaining Control Through Private Real Estate
To diversify into multifamily assets, RIAs have traditionally allocated investment dollars to public real estate funds. While liquid, public funds are generally highly correlated to the equity markets. Investors can benefit from adding private strategies to their real estate allocation to create a more balanced and efficient portfolio. Private real estate provides RIAs more control—both strategically and tactically—in making investment decisions aligned with short- and long-term client goals.
RIAs could also allocate funds directly to real estate assets, but that requires significant professional oversight and potential concentration risk. Investment in private funds enables RIAs to benefit from attractive multifamily fundamentals and portfolio diversification. In addition, by selecting managers that prioritize an unlevered yield-focused strategy with resilient income growth and dedicated asset management teams, RIAs can use private real estate to mitigate downside risk. Tactically allocating capital to co-investments offered by private funds further allows an RIA manage bespoke exposure to certain geographies, risk profiles, or product types based on individual client goals.
Family offices who have invested in private real estate dynamically from this “total return” approach are better able to achieve their goals of wealth preservation, durable income, and capital appreciation. RIAs can adopt a similar strategy to infuse stability into their investment portfolios and minimize risk exposure amidst volatile economic cycles.
