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The Hunt for Yield in 2020

Jason Weissman Boston Realty Advisors

Macroeconomic and geopolitical uncertainty has had capital from around the globe flocking to the U.S. Treasury market for decades. Albeit one of the safest investments in the world, yields are at historic all-time lows, making it an arduous task to achieve attractive risk-adjusted yields from fixed income investments. In November, Bill Gross told the Financial Times that U.S. stock and bond markets are set for a tougher time in 2020 as fiscal and monetary stimulus loses its “oomph.” Further and as a result of recent global events, in its January 6th Market Strategy Report, Oppenheimer & Co. stated – What was a global “risk-on” at the start of the new year has turned into a “risk-off” precautionary interlude. The net: Pension funds, endowments, family offices and private capital investors are all searching for better returns.

What are you solving for? A currency hedge? Depreciation? Or, are you seeking inflation protection? Commercial real estate checks the box on all fronts and has long been a favored asset class for private and institutional investors.

According to data from the Institutional Real Estate Allocations Monitor produced by Hodes Weill, global institutional investors are set to increase real estate allocations to an additional $135 billion in 2020. The reason for the influx of capital is because of a significant spread between published cap rates and ten-year treasuries, a metric that reflects the health of the CRE investment market. As of December 31st, according to CoStar Group, average cap rates were at 6.0% and the ten-year treasury at 1.92% – a 408 basis point differential.

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