Last week I asked an industry veteran who works for a companythat manages a major core real estate fund about thefund's returns. He answered not surprisingly that the pastyear has been pretty brutal--the fund lost almost 40% for itsinvestors, a fairly typical result in the competitive set. But healso mentioned that over its nearly 40-year history, the portfoliohas recorded about an 8% annualized return just about what advisorspromised when they started marketing core funds all those decadesago.


Lost in the past 20 years of rollercoaster performance andoverleveraging, commercial real estate is supposed to giveinvestors a bond plus return--somewhere between lower risk bondsand higher risk stocks. An 8% annualized return delivers rathernicely on that promise.


But core fund marketers also proffered that real estate was lessvolatile than other assets--providing relatively reliable steady,eddy returns. The pitch was well-leased properties would yieldstrong income and provide opportunity for additional modestappreciation.


The low volatility part of the story hasn't exactlypanned out--stocks certainly seesaw more wildly, but real estatehardly provides anything approaching stable, reliable year-to-yearreturns. If investors mistime their plays, they court biglosses--pity anyone who bought into a core strategy post 2005.


But whether you are a long-term player or short-term markettimer, core has to look good right now. The big open-end fundsapproach market bottom--value losses finally flatten out withfurther downside risk limited. You can start collecting a decentincome coupon even if values don't ratchet up for a whileand eventually take advantage of appreciation mark-ups in anyrecovery.

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Jonathan D. Miller

A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.