Private Real Estate a Diversifier or More?

A safe haven is an asset that is unrelated or negatively related to other assets in highly uncertain or turmoil markets. Therefore, a safe haven asset has the ability to mitigate risk and increase returns in extreme market conditions. A hedge is an asset that is negative related to other assets, on average, but does not have safe haven features during periods of market stress. While, a diversifier is an asset that has an imperfect positive correlation with other assets, on average, and like a hedge does not offer safe haven features.While, private real estate provides diversification benefits to stocks it may also be a hedge or safe haven asset as it is a hedge against inflation and the majority of real estate returns comes from rent payable in all market cycles. Yet as far as the author is aware, no study has examined whether private real estate is a safe haven or hedger in the US. Using monthly transaction based real estate data and both OLS and quantile regression we find that private real estate is both a “weak hedge” and a “weak a safe haven” asset. In other words, private real estate is more than a diversifier.