Figuring on 8 Percent

Last week I asked an industry veteran who works for a company that manages a major core real estate fund about the fund's returns. He answered not surprisingly that the past year has been pretty brutal–the fund lost almost 40% for its investors, a fairly typical result in the competitive set. But he also mentioned that over its nearly 40-year history, the portfolio has recorded about an 8% annualized return just about what advisors promised when they started marketing core funds all those decades ago.

Lost in the past 20 years of rollercoaster performance and overleveraging, commercial real estate is supposed to give investors a bond plus return–somewhere between lower risk bonds and higher risk stocks. An 8% annualized return delivers rather nicely on that promise.