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Matt Malone explains the differences between public and private real estate exposures.
Key Takeaways
- Matt Malone, head of investment management at Opto, breaks down the differences between REITs and private real estate funds.
- Often, investors' first exposure to private markets is through a commercial real estate investment strategy. A publicly-traded real estate investment trust or REIT is one of the most straightforward ways to access commercial real estate.
- Larger public strategies are primarily income-driven and invest in stabilized properties. Those can be good solutions for people that are looking for income but tend to be correlated with equity markets.
- Private real estate funds tend to focus on value-add and development. They are higher returning, also income generating, all while being less exposed to public market volatility.
Transcript
Hi, I'm Matt Malone, head of investment management. I've spent over 15 years in the private markets in a variety of different roles, including performing diligence and analysis on alternative investment managers, structuring funds in the alternative investment space, and talking to financial advisors and their clients about alternative investment solutions to their portfolios.
Oftentimes, investors' first exposure to private markets is through a commercial real estate investment strategy, and there are a number of different ways to access commercial real estate. One of the most straightforward ways is through a publicly-traded REIT. You can also access private real estate through non-traded public strategies, as well as private strategies as a number of different access points.
Real estate markets are not homogenous markets. There are a lot of different strategies within real estate, so you can think about it from a strategy perspective. Core, core+, value-add, opportunistic, distressed; there's a variety of different strategies.
When we look across the real estate market, what you tend to find in the larger public strategies are strategies that are more focused on the core and core-plus end, which means those are primarily income-driven strategies and their strategies that are investing in stabilized properties. Those can be good solutions for people that are just looking for income.
If you're looking to participate in a real estate strategy that may be a potentially higher returning strategy, that has more growth as well as income, if you're looking to do some value-add or some development, those tend to not be in the public strategies for a number of reasons, they tend to be in private vehicles. So you need to think about what the objectives are for you and your client, and once you have made some determinations on your objectives and your risk profile, then you can look at ways to access the different strategies.
The other thing you're going to want to think about is that if you're accessing a strategy through a public wrapper versus a private wrapper, oftentimes, you're going to be exposed to market beta that you wouldn't be exposed to in a pure private strategy. So if you're accessing real estate through a public REIT, public REITs show a high level of correlation to the S&P over time.
In times of distress, you may see that you, your value, your price of your public REIT may not be 100% tied to the value of the underlying assets. It may be more correlated to the market, whereas, in a private strategy, you would have more protection from those roller coaster rides in the public markets.
Important disclosures
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