Real estate is supposed to be a great inflation hedge, and it can be, so long as cash flow from rentals can increase fast enough to keep up with cap rate compression.
In a more complex and analytic way, that's what MSCI'S senior associate Fritz Louw's recent post, "Real Estate's Income Risk in an Inflationary World," is about, especially for leveraged investments.
"For many investors, risk analysis focuses on the measurement of capital exposure across property types and geographies," Louw writes. "But with income return making up such a significant part of long-run returns, it may make sense for investors to understand income exposure across tenant types, concentration risk to individual tenants and the probability of default on rental payments."
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