From a small northwestern observatory…

OK, maybe not 101… but certainly this is a pretty basic primer. Real estate is an excellent inflation hedge and provides diversification to a broader portfolio of assets. If you want liquidity (and this is true with any sort of investment) you may have to give up some potential returns by investing in publicly traded REITs. If you are willing to give up liquidity, you can potentially achieve higher returns with either direct investments or some pooled investment, such as a private equity or hedge fund. Either way, higher potential returns usually entail higher risks, and so diversification is key. I frequently use the word “curated” to describe a carefully selected and managed portfolio of real estate assets.

There’s more, but that’s a good start. So if this is so basic, why was the market shocked — SHOCKED, I say! — when Scotland-based Aegon shut down it’s £381 million property fund last week and Aviva shut down its £367 million fund due to liquidity problems. It comes as no surprise that Brexit has been a real mess for investments in the UK, and coupled with the pandemic, liquidations in British property funds have outstripped new investments. Aegon said last week that they hoped to begin distributions in the 3rd quarter, and it would take a year or two to get the money out to everyone. Apparently the same is expected for Aviva.

This says a lot about investments in the UK in general, and particularly the future of real estate in the UK in the post-Brexit, post-Pandemic world. It also says something about whomever had been investing in these funds in the last year or two. However, it says very little about real estate in general.

Here in the U.S., we know that some sectors are having some problems. Retail, for example, looked like it was going to completely tank last year, but then rebounded this year after we started making some headway on COVID. Of course, some funds are dug in too deep (see my recent commentary on Washington Prime Group, here) but we’ve been fully invested with ACCRE throughout the pandemic, and while this hasn’t always been a smooth ride, care and caution have paved the way. However, even an index fund of REITs this year has outperformed other indices, as shown below from the Financial Times FTSE index:

I hope this helps a bit. As always, if I can answer any questions, please let me know.

John A. Kilpatrick, Ph.D., MAI — john@greenfieldadvisors.com