Think U.S. Commercial real estate debt: A 'superfood' that can enhance portfolio performance
We consider commercial real estate (CRE) debt to be a portfolio ‘superfood’, given its track record of consistently generating attractive risk-adjusted returns, relative to most other asset classes, although past performance is not a reliable guide to future performance.1 Prior to the Global Financial Crisis (GFC), banks, life insurers, and CMBS investors held nearly 80% of the $4.1 trillion2 U.S. commercial and multifamily mortgage investment market, making it difficult for other investors to access. Stricter banking regulations, enacted in the wake of the GFC, resulted in a pullback in commercial banks’ and CMBS conduits’ lending activities, and according to Preqin, opened up the door for an $19.5 billion capital raise for U.S. CRE debt in 2017.
1See Fig.6 highlighting where CRE debt outperformed stocks and bonds on a risk-adjusted basis, from 1997-2017. 2Federal Reserve Flow of Funds, Q4 2017.