jeffrey schwaber He is the CEO of Bluerock Capital Markets and oversees the company’s capital markets, securities sales and distribution operations.

russ alan prince: Many advisers have moved away from the 60/40 portfolio model and welcomed alternatives such as inflation and recession hedges. How can retail investors gain access to these alternative investments and what benefits are asset managers looking to offer?

jeffrey schwaber: Advisers are rethinking the 60/40 portfolio model because it has faced significant challenges in recent periods. In particular, stocks and bonds have been highly correlated with each other this year with significant drops in value. The good news is that there has been a widespread democratization of institutionally favored alternative investments for many years by quality asset managers to give individual investors greater access to alternative asset classes. This includes real estate, private credit and debt, and many others, all with different levels of risk.

In the current environment, investors are seeking alternative investments for their ability to hedge against inflation and interest rate uncertainty, a challenging target for stocks and bonds. Consequently, significant allocations to alternatives of approximately 20% or more of investable assets are commonplace today. Bluerock offers ’40 Act range mutual funds and common and preferred REITs that meet investors’ growing demand for income, tax efficiency, growth, NAV/principal stability, and low correlation to the stock and bond markets; historically the keys to higher risk-adjusted returns.

The prince: The expectations are that we are heading towards a recession. Can real estate performance be maintained and what is your outlook for 2023?

schwaber: Certain economic indicators point towards the possibility of a recession in 2023. However, the fundamentals of the housing market remain very healthy. For perspective, during the 2020 recession when real estate fundamentals were healthy before the pandemic, real estate generated a positive return of 1.6% according to the National Council of Real Estate Investment Trustees, which tracks all major real estate sectors, with all major commercial real estate sectors generating positive non-retail returns due to the impact on retail of the COVID-19 pandemic.

Prior to the 2020 recession, the 2007-2009 global financial crisis was a period in which real estate was incredibly overbuilt and overleveraged, leading to negative 17% real estate returns. Today, the three key factors that previously negatively affected real estate returns are healthy: supply, leverage, and jobs.

Real estate supply as a percentage of total inventory is the lowest in the past 10-year period compared to prior periods and is forecast to remain at lower levels. The use of leverage in the recovery following the global financial crisis from 2009 to 2022 has been the lowest of any economic/real estate recovery in the last 40 years due to lessons learned. On the labor front, the unemployment rate was 3.7% in November, near the lowest level in 10 years. Over the course of the 44-year history of the National Council of Real Estate Investment Trustees property index, there have only been four years of declines as a result of a combination of over-leverage, over-building, and/or high unemployment , none of which currently exist. .

We believe that going into 2023, the real estate sector is well positioned and ready to further accelerate the economic recovery. In addition, private institutional real estate, Bluerock’s focus, has actually outperformed its long-term average return of 9.7% per year by 20-50% during periods of rising rates and inflation, which they currently exist.

The prince: Is there any sector within the real estate sector or private credit in which Bluerock is optimistic at the moment?

schwaber: Bluerock’s approach is to provide investors with access to institutional asset classes that possess long-term structural tailwinds and the opportunity for asymmetric high-risk adjusted returns that favor the investor. Based on this premise, our real estate bull sectors include the industrial, life sciences, and single-family residential sectors.

On the industrial side, one of the biggest drivers has been the growth of online retail, e-commerce, which is driving an inordinate demand for warehouses and distribution centers. By one estimate, every additional $1 billion of e-commerce sales requires 1.2 million square feet of new warehousing space and with $830 billion of e-commerce sales projected by 2026, approximately 1 billion square feet will be needed. square feet of additional industrial space by 2026. We just can’t build that fast, especially with inflated commodity prices and a disrupted supply chain. And this new demand is not cyclical, it is structural. E-commerce is expected to more than double as a percentage of total retail sales over the next 20 years, providing a huge opportunity for investors as this surge in demand has already driven rentals to record levels, has brought occupancy rates to record levels and is expected to lead to higher rents and property values ​​in the future.

We believe that life sciences real estate offers an attractive long-term investment opportunity based on significant growth in biotechnology research, coupled with physical requirements that make tenant movement prohibitively expensive and geographic concentration with only a few centers nationwide due to specialized human capital. These systemic fundamentals will continue to drive rents and property values ​​in this specialized sector.

The main force driving the current residential housing market is the significant lack of supply of apartments, single-family rentals and homes for sale, currently estimated at a combined 3.8 million homes. The for-sale market has slowed down substantially due to much higher loan rates and high prices creating undeniable affordability issues. The housing shortage, coupled with a substantial increase in property costs, is expected to spur even greater demand for single-family and multi-family rentals for many years to come.

In the private credit sector, we are bullish on senior secured loans that are secured as senior positions on corporate assets and cash flows. Bluerock’s Act ’40 Institutional Credit Fund provides access to SSL through actively managed portfolios of collateralized loan obligations. Collateralized loan obligations have generated high income (14.8% annual average since 2003) and very strong total returns through various market cycles, including periods of rising interest rates and inflation, such as the current environment. They have also required structural safeguards such as continued diversification and proof of investor collateral.

PRINCE RUSS ALAN He is the CEO of Private Wealth magazine ( and Chief Content Officer of High-Net-Worth Genius ( He consults with family offices, wealthy and fast-paced entrepreneurs, and select professionals.

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