NEW YORK (Reuters) - Real estate offers investors a consistent long-term return in the volatile market environment the election of President-elect Donald Trump has ushered in, Chris Merrill, co-founder of Harrison Street Real Estate Capital LLC, said on Friday.
A growing perception that Trump’s economic policies will lift consumer prices pushed the dollar higher in its steepest two-week increase in 13 years. U.S. stocks have hit all-time highs and bond prices have plunged since the election.
“In my world, what we’re talking about is uncertainty, we’re talking about volatility,” Merrill told the Reuters Global Investment Outlook Summit. “When you think about institutional investors, you’re seeing increasing allocations to real estate and real assets because they’re looking for safety.”
Harrison Street, which manages about $10.4 billion in assets, invests in student and senior housing, medical centers and self-storage facilities, all of which offer consistent returns regardless of the business cycle, he said.
Merrill said because real estate is in the eighth or ninth year of a bull market, his firm tries to find the most defensive part of the four asset classes it invests in.
“Our strategy is really about consistent demand,” he said. When people are worried about volatility, worried about market cycles, we view our asset classes as stable, consistent long term.”
Harrison Street’s investments are about half in senior housing and medical centers, roughly 40 percent in student housing with the remainder in self-storage facilities.
The return on Harrison Street’s typical assets in student housing and medical centers provide perhaps 1 to 2 percentage points above similar assets.
Cap rates, a widely used metric in real estate to estimate the future rate of return on an investment, may be 3.5 to 4 percent on multifamily assets in Washington DC, for example, but 5 to 6 percent on student housing in Michigan.
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Reporting by Herbert Lash; Editing by Andrew Hay