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Is Real Estate Bond-Like?

Growth Drives Long-run Risk and Return
Peter Shepard, Peter Hobbs, Yang Liu
June 2015

Many institutional investors have been favoring private real estate over bonds, drawn by  its steady income stream and higher yields. But while the short-term income of real estate may be bond-like, our research shows that its long-run behavior is much more cyclical and growth-sensitive. Real estate is not the high-return, low-risk, free lunch some investors would hope for. But it’s not all bad news: The research further suggests that private real estate generates a liquidity premium in most markets around the world, and that inefficiencies in international markets still leave large opportunities for diversification globally.