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.
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