Following last week’s commentary on the growing importance of alternative asset classes in investor portfolios, I wanted to provide further comments on one of the most effective and underutilized tools for achieving long-term financial stability: private real estate.

Most traditional advisors recommend adding real estate through publicly traded Real Estate Investment Trusts (REITs), but these can be highly volatile and influenced by market sentiment, interest rate concerns, and analyst reports.

The past five years clearly illustrate this, with the S&P/TSX Capped Canadian REIT Index posting negative returns in three of them: -13.08% in 2020 (COVID-19 pandemic), -17.02% in 2022 (high inflation and interest rates), and -2.01% in 2024.

Private real estate, on the other hand, offers a different experience. This asset class is valued based on the net asset value (NAV) of the real estate holdings, not on stock market speculation. As a result, it can provide a more stable, less volatile income stream with the potential for capital appreciation and tends to behave independently of public equity and bond markets – a key trait for effective diversification.

Institutional investors, including pension plans, endowments, and charitable foundations, have long leveraged private real estate to generate inflation-protected income and to reduce reliance on market-correlated assets.

Here are four key points on why private real estate is a critical addition to retail portfolios:

• Low correlation to public markets: Helps reduce overall portfolio volatility.
• Consistent, tax-efficient cash flow: Often, distributions are classified as Return of Capital (ROC), which is the most tax-preferred investment income (treated as capital gains).
• Professional management: No need to deal with tenants, repairs, or direct property ownership.
• Broader opportunity set: Includes high-demand sectors like multifamily housing, industrial space, and infrastructure not commonly found in public REITs.

A great example of a private real estate strategy is the Forsyth Private Real Estate Portfolios, a multi-manager, multi-sector diversified mix of Canadian and U.S. income-generating assets. With exposure across multifamily, industrial, storage, and infrastructure, the strategy has delivered 23 consecutive quarters of positive performance (as of June 2025).

This speaks not only to the strength of the asset class but also to the benefit of accessing experienced, institutional-grade managers.

In today’s market, where traditional strategies are showing their limitations, including asset classes beyond traditional stocks and bonds in the portfolio allocation can be essential to helping achieve long-term goals.

In the event you have questions or would like some additional information, please don’t hesitate to reach out.

In the meantime, stay tuned for next week’s commentary, where I’ll share insights on another asset class that’s rarely found in Canadian portfolios.