Commercial Real Estate: Six Potential Benefits

Investing in Commercial Real Estate Offers a Myriad of Potential Benefits

Stocks and bonds do not have to be your only investment options. Commercial real estate may be the missing link in a traditional portfolio. The asset class can potentially provide robust income and capital appreciation, along with other benefits that improve the efficiency of a portfolio. Although not as common to you as stocks and bonds, institutions such as university endowments and pension funds have long used commercial real estate to diversify and to improve the riskadjusted performance of their portfolios.

There is no assurance that real estate investments will achieve capital appreciation or provide regular, stable distributions.

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Understanding REITs

Sources: The World Bank, Securities Industry and Financial Markets Association


Potential Benefits of Commercial Real Estate Investing:

1. Income and Capital Appreciation
2. Low Correlation to Traditional Investments
3. Lower Volatility 4. Inflation Protection
5. Superior Performance in Rising Rate Environments
6. Enhanced Risk-Adjusted Return


1. Income and Capital Appreciation

Historically, commercial real estate has provided income and generated a total return that are well above those of stocks and corporate bonds. Commercial real estate is an asset class that can offer high income in a low-yield environment. Over a 20-year period, commercial real estate has generated higher income and total return than traditional asset classes, as depicted below.

Sources: MorningStar®, NCREIF Property Index (NPI) (“Commercial Real Estate”) (provides returns for institutional grade real estate held in a fiduciary environment in the U.S.), Bloomberg Barclays U.S. Aggregate Bond Index (“Bonds”), S&P 500 or Standard & Poor’s 500 Index (“Stocks”). Data as of December 31, 1997 to December 31, 2017. Past performance is no guarantee of future results. The charts depicted herein are for illustrative purposes only and not indicative of any specific investment. An investment cannot be made directly in an index. Stocks and bonds are typically more liquid than direct investments in real estate. Tax efficiencies of investments in stocks and bonds may vary from those related to investments in real estate depending on the unique circumstances of the assets in the portfolio, portfolio management decisions, the tax status of the structure in which assets are held, and the tax status of the investor. Direct investments in real estate and bonds tend to have less volatility than investments in stocks due to general and industry-related market fluctuations, but the vehicle in which those assets are owned can also have a material impact upon that volatility. Expenses related to an investment in a professionally managed non-traded REIT that has a daily NAV may be higher than the expenses associated with an investment in a publicly traded stock or bond. The risks associated with an investment in real estate may materially differ from an investment in a publicly traded stock or bond and one should therefore review risk factors prior to making any such investment. Past performance is no guarantee of future results. The charts depicted herein are for illustrative purposes only and not indicative of any specific investment. An investment cannot be made directly in an index. There is no assurance that real estate investments will achieve capital appreciation or provide regular, stable distributions.


2. Low Correlation to Traditional Investments

With low or even negative correlation to stocks and bonds, commercial real estate may be helpful in providing diversification and lowering portfolio volatility.

Commercial Real Estate (CRE) May Help with Portfolio Diversification*
(Correlations of Quarterly Returns 1998 - 2017)

Understanding REITs

*Source: MorningStar®, NCREIF Property Index (NPI) (“Commercial Real Estate”) (provides returns for institutional grade real estate held in a fiduciary environment in the U.S.), Bloomberg Barclays U.S. Aggregate Bond Index (“Bonds”), S&P 500 or Standard & Poor’s 500 Index (“Stocks”). Past performance is no guarantee of future results. The charts depicted herein are for illustrative purposes only and not indicative of any specific investment. An investment cannot be made directly in an index. There is no assurance that real estate investments will achieve capital appreciation or provide regular, stable distributions.

3. Lower Volatility

Movements in the broad markets, corporate announcements and analyst actions can cause large fluctuations in prices of stocks and bonds. Since commercial real estate is not publicly traded, the asset class exhibits volatility that is substantially lower than stocks and closer to bonds, which may help reduce portfolio volatility.

Commercial Real Estate Has Historically Been Less Volatile Than Stocks*
(1998 - 2017)

Understanding REITs


4. Inflation Protection

Inflation erodes the purchasing power of money. But historically, commercial real estate has provided some protection against inflation. Growth in Net Operating Income Has Historically Outpaced Inflation

Growth in Net Operating Income Has Historically Outpaced Inflation
(10-Year Average Annual Growth Rates 2008 – 2017)

Sources: National Council of Real Estate Investment Fiduciaries (NCREIF) and the U.S. Department of Labor, Bureau of Labor Statistics. Past performance is no guarantee of future results. The charts depicted herein are for illustrative purposes only and not indicative of any specific investment. An investment cannot be made directly in an index.


5. Superior Performance in Rising Rate Environments

While higher interest rates may pressure traditional asset classes, commercial real estate has delivered strong returns in prior periods of rising rates. During the time periods referenced below, commercial real estate only experienced one quarter of negative returns, whereas stocks and bonds had 16 and 19 negative quarterly returns, respectively.

Commercial Real Estate Has Performed Well During Fed Fund Rate Increases

Sources: Federal Reserve Bank of St. Louis, National Council of Real Estate Investment Fiduciaries (NCREIF), Griffin Capital Advisor, LLC. Past performance is no guarantee of future results. The charts depicted herein are for illustrative purposes only and not indicative of any specific investment. An investment cannot be made directly in an index. There is no assurance that real estate investments will achieve capital appreciation or provide regular, stable distributions.


6. Enhanced Risk-Adjusted Return

Adding commercial real estate to stock and bond holdings can boost your portfolio performance and lower risk. As shown below, a portfolio with commercial real estate has historically delivered higher returns with lower risk than a portfolio with only traditional asset classes.

Commercial Real Estate May Lower Risk and Improve Portfolio Return (1998-2017)

Sources: Morningstar®, NCREIF Property Index (NPI) (“Commercial Real Estate”) (provides returns for institutional grade commercial real estate held in a fiduciary environment in the U.S.), Bloomberg Barclays U.S. Aggregate Bond Index (“Bonds”), S&P 500 or Standard & Poor’s 500 Index (“Stocks”). Stocks and bonds are typically more liquid than direct investments in real estate. Tax efficiencies of investments in stocks and bonds may vary from those related to investments in real estate depending on the unique circumstances of the assets in the portfolio, portfolio management decisions, the tax status of the structure in which assets are held, and the tax status of the investor. Direct investments in real estate and bonds tend to have less volatility than investments in stocks due to general and industry-related market fluctuations, but the vehicle in which those assets are owned can also have a material impact upon that volatility. Expenses related to an investment in a professionally managed non-traded REIT that has a daily NAV may be higher than the expenses associated with an investment in a publicly traded stock or bond. The risks associated with an investment in real estate may materially differ from an investment in a publicly traded stock or bond and one should therefore review risk factors prior to making any such investment. Past performance is no guarantee of future results. The charts depicted herein are for illustrative purposes only and not indicative of any specific investment. An investment cannot be made directly in an index. There is no assurance that real estate investments will achieve capital appreciation or provide regular, stable distributions.


Diversify with Commercial Real Estate

Commercial real estate is an asset class that institutions have used for lasting income and potential for capital appreciation. With low correlation and low volatility, commercial real estate can complement a traditional portfolio of stocks and bonds by improving diversification and risk-adjusted performance.


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Investors should carefully consider the investment objectives, risks, charges and expenses of any products offered by Griffin Capital Securities. This and other important information about the products is included in its prospectus, which can be obtained by visiting www.griffincapital.com. The prospectus should be read carefully before investing.
There is no assurance that real estate investments will achieve capital appreciation or provide regular, stable distributions.

Griffin Capital Securities, LLC, Member FINRA/SIPC, is the dealer manager for non-traded REITs sponsored by Griffin Capital Company, LLC and the exclusive wholesale marketing agent for the Company’s interval funds.