Hazelview Investments explains how investors can benefit from rising interest rates
Advisors should look at getting into real estate investment trusts (REITs) if history repeats again, according to one portfolio manager well grounded in the space.
"Generally, theoretically, how REITs behave in a rising rate scenario is that they typically underperform at the beginning, and then they outperform as rates actually rise on the short end of the curve because the economy is so strong," Corrado Russo, managing partner and head of global securities at Hazelview Investments, recently told WP Talk.
“Look at what’s happened this year. Obviously REITs have had a tough go of it in the first quarter of the year because of that rising rate. But, it feels like we’ve just gone through the negative, that inflection point, and, obviously, rates have just started rising. So, if history is to repeat itself, it feels like a good entry point right now.”
Hazelview, which now has $11 billion in capital, has several products to offer advisors who want to add some real estate to their portfolios.
Russo has built Hazelview’s public real estate business to $3.5 billion of assets under management from $60 million when he arrived in 2011. He said those who want long-term capital growth that is not tied to the daily market should consider private real estate, even though it does not have any liquidity since the funds are locked up for five to ten years, depending on the strategy.
“You don’t really have a ton of liquidity or the ability to get out,” he said. “You’re sort of there for the ride, but you’re obviously getting a long-term great capital growth vehicle.”
He recommended public real estate for advisors who want some exposure to the real estate market that has more liquidity and the ability for them to get out anytime, though it is more susceptible to the market.
“If you’re taking a long-term view of five to ten years, you’re going to get a similar return at the end of the day with lots of liquidity, as long as you’re okay with the bumps in the road along the way,” he said.
Hazelview also offers a Four Quadrant Fund, which Russo said is a flagship product for advisors because it combines the benefits of private real estate – good long-term growth and low volatility – with a 30% to 35% component of public real estate that allows for monthly purchasing and quarterly liquidity.
Both public and private real estate have equity and debt, so he said each quadrant adds something different to the fund. Private equity has great long-term returns and stability, and the debt component produces the recurring income stream. Private equity adds value and improves the quality of the asset in the product offering in the market, though that sometimes means reinvesting the cash flow from the assets back into the buildings to constantly improve them and get more value at the end of the day. Its debt portion of the portfolio helps Hazelview pay the 5% distribution in the portfolio every month to ensure it’s funded from the underlying investments.
Given what’s happening in the financial and global world, and the real estate potential, he urged advisors to consider adding this alternative to their portfolios. You can hear all of Russo’s conversation on WP Talk’s podcast, sponsored by Mackenzie Investments, here.