Investors should begin moving into in riskier real estate, according to a new research paper by J.P. Morgan Asset Management.
According to J.P Morgan's research, investors should consider starting to “inch up the risk curve” to core-plus real estate, which it defines as high-quality real estate purchased with 50% to 60% leverage, while core has about 35% leverage.
“Moving forward, given expectations of a low-growth market environment, getting stable yield will be tough,” Michael C. Hudgins, real estate strategist at J.P. Morgan Asset Management, said in an interview. “Moving up the risk curve is interesting if you are moving into economic growth that is disappointing.”
Real estate that uses more leverage and is a bit riskier, can provide steady measured growth and rents, at least in two sectors, are moving up, he said in an interview. These properties also provide steady cash flow growth and since lenders are competing to offer mortgages on high quality properties, the cost of debt is low, he said, explaining the paper's findings.
Mr. Hudgins noted that 61% of real estate is invested in the office and multifamily sectors, which are performing better.
The report is available at http://www.pionline.com/assets/docs/CO714291029.PDF.