Defensive Real Estate

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It's hard to fail at investing if you don't lose money.

This is a strength of diversified real estate investing. Portfolios don't "blow-up" unless management does something really stupid. That can happen via overconcentration in a failing market or - more likely - through nosebleed levels of debt.

You can add another layer of protection by investing in sectors resilient to recessions. Historically, affordable housing, mobile home parks and self-storage fit this bill.

Of course, that narrative took a few bruises during the credit crisis as everything took a hit. However, these sectors still outperformed their less ‘essential’ real estate peers. This time around the defensive sectors are doing their job during a 3-sigma event (global pandemic).

​See the green highlighted property sectors in the table below. The table details the performance of each public market real estate sector over the last two years. While the densive sectors are not the top performers in 2020, they have demonstrated remarkable resiliency.

The blue highlighted sectors are the winners thus far. Tech infrastructure and distribution facilities are outperforming thanks to record tailwinds from WFH. Add all the youtube videos the kids are streaming and your spouse's new online shopping addiction...and you have the dream scenario for tech real estate & warehouses.

We love these highflyer real estate sectors for reasons we'll share in subsequent notes. However, we also love the boring stalwarts - the defensive sectors that can take a punch and keep kicking off cash flow. Both serve a purpose in strong portfolios.

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