The Stewardship of Wealth: Successful Private Wealth Management for Investors and Their Advisors, + Website

Real Estate

The most common real asset is real estate;¹ indeed, real estate is the largest single asset class in the world. Properly structured real estate portfolios will exhibit low correlations to equity and fixed-income assets, will provide a strong ongoing yield, will appreciate slowly but consistently, and will perform well during the periods of unanticipated inflation referred to earlier. It's a pretty compelling portrait, marred only by the fact that, over long periods of time, real estate will tend to underperform stocks, and therefore there are modest, but real, opportunity costs associated with allocating too much money to real estate.

Real estate can be further broken down into two core groups, residential and commercial. The latter includes many different sectors, including retail, industrial, multifamily, office, hospitality (hotels and resorts), and raw land. Except for raw land, real estate must be “created,” and therefore real estate assets will fall along a continuum, depending on where they fall in the stages of value creation:

• Entitlement—The property is in the process of being planned and approved, but no construction has yet occurred.
• Development—The property has been approved and is being prepared for construction.
• Construction—The structures are being prepared for occupancy.
• Lease-up—The buildings are largely completed but not fully occupied.
• Stabilized—For commercial property, this means the property is fully leased and operational. For residential housing, ...