Many people and investors are feeling some pain and angst as they are experiencing the increased volatility in the global equity markets. Many investors perceive uncertainly about so many investment factors. Some of these investors are nervous about return expectations for their traditional investments for next year. As investors set their investment plans and strategies for 2019, some are concerned about the level of volatility in traditional investments (stocks, bonds and mutual funds) that they might have to endure to achieve their return goals.
To diversify away from the recent volatility, correlation and uncertainty of traditional investment in stocks, bonds and ETFs, there may be an ‘ALTERNATIVE’ for individual investors to consider. . .
ALTERNATIVE?… Income Producing Commercial Real Estate?
Rewind to December 2017 and return expectations for 2018
Before evaluation of investment plans for 2019 is discussed, it is worth while taking a quick look back to late December 2017, when investors were setting their investment plans for 2018. As 2017 was coming to a close, the US equity markets were completing a strong performance year with the S&P 500 index gaining 21.8%, the Russell 2000 gaining 14.6%, and the FAANG stocks: Facebook (+53%), Amazon (+56%), Apple (+46%), Netflix (+55%), Google (+33%). There was a new tax cut for business passed by Congress in late 2017, so some investors felt that this momentum could continue into 2018, and they could set a PASSIVE investment strategy to investing in indexes, ETFs and other traditional portfolio options like stocks and bonds. A few investors and advisors even said: “Set it and forget it” with regard to PASSIVE investment strategies for 2018.
Coming off a strong 2017, and expecting the positive market momentum to continue in 2018, some investors were less interested in making investments into income producing CRE, with return profiles of 6% to 12% (based on asset growth and income, produced by the asset).
2018 returns did not play out to the expectation of many investors. The S&P 500 is bouncing around a return of 0% for 2018, as year-end nears. Equity indexes have experienced much more volatility in 2018 compared to 2017, causing nervousness about return expectations for 2019. Meanwhile many Class A CRE assets produced returns of 6%-12% in 2018, with much less volatility than those traditional assets.
Setting investment objectives and goals for 2019: Assessing Uncertainty for investment return factors:
There is no certainty to investment return. Each investor must determine their own risk tolerance first, and then set their investment return goals based on their tolerance for risk. The hard part for many investors is how to assess risk and set expectations for potential return. Looking forward to 2019, many investors are concerned about what the certainty may be for both growth and income (asset price growth and dividend/income returns) on their investments for traditional investments (Stocks, Bonds, ETFs)
Alternative Investment option? Income Producing Commercial Real Estate?
For some investors, there may be an alternative investment option that could be of interest for investors looking for non-correlated investments to traditional investments, with potentially less price volatility in the short term.
Income producing commercial real estate assets
These types of CRE assets typically have existing cash flow being produced by rental income from tenants. Depending on the asset class and market location, the cash flow to investors might be in the range of 5%-10% depending on the leverage and financing structure of the asset.
The risk to the investor is the certainty of the cash flow coming from rental income of the asset. A Class A commercial office building, with over 95% occupancy, with leases from multiple credit worthy corporate tenants, that do not expire for at least 5 years, should have more certainty of cash flow from the asset compared to the cash flow to investors from traditional assets: stocks, bonds, and ETFs. Also, there can be much more short-term volatility to traditional investments that trade on an exchange, compared to a Class A Office building with high occupancy that does not have its NAV traded daily on an exchange. Class A commercial office assets are long term investments and thus do not have their NAVs priced every second or every day.
2019 investment strategy options
Some investors can evaluate, analyze and review investment options for 2019, and then gauge what type of risk/certainty there may be to achieve returns that may be derived from dividends/interest and asset price gains of a Class A commercial office building. Then, compare that risk to traditional investments. Those investors can then compare the certainty/uncertainty of traditional investment returns and make their own assessment for the likelihood of achieving total returns of 0%, 5%, 10%, 15%+??? . . . or losing money.
If some investors are concerned about potential volatility in their traditional investments, and uncertainty for returns in 2019, they may want to evaluate and consider an ALTERNATIVE investment option: Income producing commercial office real estate assets.
If an individual investor decides to evaluate and eventually invest in income producing CRE assets and funds, the investor should make sure that their investment capital is going directly into the asset or investment vehicle with zero slippage or commission to invest into that asset or investment vehicle.
Welcome to the Investment Revolution!
Investing in KBS Growth & Income REIT includes substantial risks. These risks include, but are not limited to: the possibility of losing your entire investment; no guarantees regarding performance; upon sale or distribution of assets you may receive less than your initial investment; fluctuation of the value of the assets owned by KBS Growth & Income REIT; lack of a public market for shares of KBS Growth & Income REIT; limited liquidity; limited transferability; reliance on KBS Capital Advisors LLC, the REIT’s advisor, to select, manage and dispose of assets; and various economic factors that may include changes in interest rates, laws, operating expenses, insurance costs and tenant turnover. Shares of KBS Growth & Income REIT are not suitable for all investors. Investors should read and consider the PPM carefully before investing.
KBS Direct makes no representations as to the appropriateness of an investment in KBS Growth & Income Real Estate Investment Trust for ERISA plan fiduciaries and IRA owners and no investment advice is being provided. ERISA plan fiduciaries and IRA owners should consult with their own advisors and counsel before making an investment in the REIT’s shares. This is not an offer to sell securities. Offers to sell, or the solicitations of offers to buy, any security can only be made through a private placement memorandum and other official offering documents that contain important information about risks, fees and expenses.
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