Diversify your retirement portfolio: 5 facts about commercial real estate investments

(BPT) – Building savings for retirement isn’t easy, and it’s only become more difficult with rising inflation and public market volatility. According to a report by Vanguard,1 retirement account balances decreased by 20% in 2022 alone due to economic challenges. This news may sound grim, but investment alternatives may provide some promising options to help individuals plan and save for retirement.

Recent data from a study by Bank of America shows that investors 43+ allocate about 55% of their portfolio in stocks and bonds.2 However, younger investors are skeptical of traditional investments, with 73% believing that it’s not possible to achieve above-average returns by exclusively investing in stock and bonds. Instead, younger investors are allocating three times more to alternative investments and half as much to stocks and bonds.

Of those alternative investments, commercial real estate (CRE) has become an emerging option for investors looking to diversify. By investing in projects such as apartment buildings, offices or industrial buildings, investors can better insulate their portfolios and potentially find opportunities in growing markets beyond their neighborhood.

Of course, CRE has historically required a significant amount of capital that can be a barrier to entry for many. However, platforms like Cadre allow investors to have a stake in commercial properties alongside some of the world’s largest institutions like Goldman Sachs and the MacArthur Foundation.

For those rethinking their retirement savings plan and looking for more options, here are five of the potential benefits of CRE investing:

1. Accessibility

Fractional stake investments in CRE have made the asset class more accessible and lowered the minimum investment for real estate investment. While CRE has been used as an investment tool by the world’s largest institutions and the uber-wealthy to build wealth over time, new investment platforms have made CRE available to more individuals than ever before.

2. Passive income

With the ability to generate income through rent, CRE is often considered an attractive source of passive income. Investors in CRE typically benefit from quarterly dividends that may be used as an additional source of income or to reinvest and compound potential earnings over the long term.

3. Reap stable returns

In contrast with the ups and downs of the stock market, CRE tends to be relatively stable. According to Investopedia, private commercial properties outperformed the S&P 500, offering investors an average annual return of 10.3% over a 25-year period.3 CRE’s stability comes from the fact that the price of real estate isn’t tied to the stock market’s performance. Even in a volatile market, CRE provides stability.

4. Hedge against inflation

One of the attractive aspects of CRE investments is that they can weather the long-term impact of inflation. Among stocks and bonds, inflation often can directly diminish returns. Through active management, CRE investors often raise the income of their properties to keep pace with inflation and generate more attractive returns over time.

5. Leverage tax advantages

Some traditional asset class options require investors to set aside funds to pay personal income taxes, which can create a significant drag on income and retirement savings. Typically, investors in CRE are able to benefit from lower tax rates than traditional investment options, as well as depreciation deductions, interest expenses and more.

Investors that are new to CRE typically prefer to partner with professionals. Since its inception, Cadre has been helping individuals navigate their first ventures into CRE through an experienced team and easy-to-use platform. Using a high-tech/high-touch approach, the firm uses proprietary models to review thousands of data points that help novice investors invest with confidence.

For many, this is a time to rethink retirement investments. To learn more about CRE and other ways to invest in your future, visit Cadre.com.

1 Source: Vanguard, Perspectives: DC Retirement analysis, 2023.

2 Source: Bank of America, Study of Wealthy Americans, 2022.

3 Source: NCREIF, First Quarter NCREIF Indices Review, 2021.