Investments don’t all move in the same direction at the same time. This concept is measured by correlation. The lower the correlation number between two investments, the less likely they will move up and down with each other at the same time. Direct real estate has historically had a low correlation compared to most other major asset classes.
Direct real estate has historically generated a higher level of income than other asset classes. Typically, tenants pay rent and, after building and other expenses are paid, any remaining cash is passed on to owners and investors, which may provide a source of supplemental income.
Real estate offers the potential for long-term growth from appreciation of portfolio properties.
If you’re saving for retirement or already retired, adding direct real estate to your investment mix may allow you to lower the overall volatility of your portfolio. Volatility is measured by standard deviation. The lower the standard deviation, the less likely it is for that investment to swing sharply above or below the historical average return.
Please note that traded investments are subject to daily price volatility because market forces determine the price but they provide investors with ready liquidity. Non-traded REITs3 do not provide ready liquidity, and if investors are able to redeem shares, the redemption price may be worth less than their original investment. An investment in a non-traded REIT does not have the same level of share price transparency as a traded investment.
Real estate has the potential to hedge inflation because property values and rents have historically increased. For tenants, leasing existing properties has been more attractive than new construction during inflationary times when the costs of building materials rise. Of course, no one can predict when inflation will hit. But the best time to buy an umbrella is before it starts to rain—not after you’re soaked. The same is true when considering an inflation-hedging investment.
1Asset allocation/diversification does not guarantee a profit or eliminate the risk of loss.
2A direct investment in real estate is subject to risks and may be impacted by changes in economic, demographic, capital and real estate market conditions. The development of other negative economic conditions in the markets in which Hines Global REIT II operates may significantly affect occupancy, rental rates and Hines Global REIT II’s ability to collect rents from its tenants, as well as property values.
3Hines Global REIT II intends to elect to qualify as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2015.