Real Estate: Portfolio Allocation, Diversification, and Timing

Abstract

Real estate has attracted significant interest among the institutional community because of its strong recent returns and relatively low volatility. But how real estate contributes to a portfolio depends on how it is defined as an asset class. The real estate asset class is composed of four separate quadrants—public and private, debt and equity—with very different risk and return characteristics. Although real estate has traditionally been valued for its income-producing and inflation-hedging properties, the primary role of real estate in a portfolio may be one of diversification.