Publications

- May 1, 2021: Vol. 33, Number 5

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Risk and real estate: Antifragility of real estate investments and black swans

by Guy Tcheau and Norman Miller, Ph.D.

The benefits of including real estate investments in a multi-asset portfolio have been well researched and documented, which is why the more enlightened fund managers have significantly higher-than-average allocations to real estate. Real estate has low correlation relative to other asset classes, high Sharpe ratios, a greater proportion of total return attributable to current income versus appreciation, and revenues secured by contractual leases from tenants. These attributes improve the risk-adjusted returns of those portfolios that include real estate.

The black swan event that is COVID-19 might allow some strategic acquisitions by those with more faith in the long-term stability of real estate, even in the face of some tenants claiming force majeure. Another attribute of real estate is antifragility; antifragile investments are those whose performance improves in relation to the size of the external shocks, as explained in The Black Swan: Second Edition: The Impact of

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