Specialty Asset Management

The Enduring Appeal of the Real

Direct ownership of real assets offers the potential for valuable income, capital appreciation and portfolio diversification benefits.

Photo by Stephen Karlisch

» Click here to access your account and more insights.

» Not a client yet? Click here to find an office or have us contact you.

Many investors like the “real” aspects of owning real property. Especially during challenging times for the financial markets, investments that you can see, touch and feel seem particularly appealing. Even more important, real assets — farm, timberland and commercial real estate properties — have historically had a low, or a negative correlation to financial assets. So direct ownership of real assets has the potential to enhance portfolio diversification and smooth overall volatility.

Timberland: Prices At or Near All-Time Lows

Timberland has historically offered investors competitive risk-adjusted returns. Timber and land prices are at or near all-time lows, largely as a result of the sluggishness in the U.S. housing market in the overall economy. But housing isn’t the only source of demand for lumber, and long-term prospects remain compelling. Current low prices represent an attractive entry point for investors who understand the long-term nature of the asset class.

The potential to enhance portfolio diversification and smooth volatility.

Farmland: A Compelling Alternative

Similar to timberland, farmland has historically offered the potential, proven over time, for capital preservation with a consistent income yield net. Annual cash returns have tended to be at or around 4%–6%, and farmland has typically appreciated by about 5%–6% as well. Farmland has also historically had a negative correlation to other asset classes and a generally countercyclical relationship to the stock market, which can help reduce portfolio volatility and hedge against inflation. Current rising land prices do not necessarily represent a bubble. The underlying stability of farmland economics — a finite supply of arable land and an increasing world population — coupled with strong and rising demand for food along with alternative fuel sources, continues to make farmland a compelling investment alternative to consider.

Commercial Real Estate: Selective Opportunities

The commercial real estate market overall continues to be hurt by economic doldrums and the absence of dynamic job creation, although there are several pockets of growth. Certain cities, such as Washington, D.C., Boston, New York, San Francisco and Seattle, are in relatively solid shape. Among sectors, apartments continue to be the strongest. Everyone wants to get into distressed situations, so they’re chasing deals and driving up prices in some sectors. It takes care and patience to invest in this area, but we’re still finding potentially promising opportunities.

Real Property: How to Invest?

Given the challenges of locating, analyzing and overseeing these types of properties, they are not typically perceived as mainstream investments. Indeed, many would-be investors stop before they get started because of limited experience dealing with real asset investments. That’s where U.S. Trust can help. We offer in-house farm, ranch, timberland and commercial real estate management services. We maintain a local presence in key markets across the country, and our professionals are true specialists, with certifications and advanced academic degrees in agricultural, forestry and real estate–related disciplines. We offer clients a way to invest in these unique assets with fiduciary oversight and ongoing management.

Dennis Moon is national executive, managing director for the Specialty Asset Management group at U.S. Trust. A frequent speaker at conferences on the national and regional level, he has more than 30 years of experience in direct management, investment, oversight and responsibility for specialty assets.

IMPORTANT INFORMATION

Projections made may not come to pass due to market conditions and fluctuations.

Past performance is no guarantee of future results. Asset allocation, diversification and rebalancing do not assure a profit or protect against loss in declining markets.

Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.

OTHER IMPORTANT INFORMATION

Nonfinancial assets, such as closely held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations, and lack of liquidity. Nonfinancial assets are not suitable for all investors.

Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risks related to renting properties, such as rental defaults.