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BUSINESS OF
MEDICINE

Commercial

Real Estate:

HOW TO PROFIT

DURING INFLATION

By Ari Rastegar
Founder and CEO of
Rastegar Equity Partners

Uncertainty in the public markets contin- In every investment there is When you factor this into an environment
ues to cause unrest among global and do- always risk. at high risk for inflation, investments that
mestic investors, with inflation being one of When considering alternatives, it is even can generate higher yield are more attractive
the main economic theories circulating more important to find the right managers if they can be done in a lower risk environ-
amongst financial analysts about the cause to work with — those who have a strong ment. When sourcing investments —
of the next market crash. track record and a system in place to manage whether in residential or commercial real es-
the risks in a less regulated environment. As tate — professionals will always have the
What exactly is inflation? a general rule, alternative investments are competitive advantage in finding opportuni-
The economic definition of inflation is “a typically held in the portfolios of institu- ties that that will generate strong risk-ad-
general increase in prices and fall in the pur- tional and high net worth investors. In- justed yield.
chasing value of money.” In reality, this vestors seek alternatives because when done
translates to ordinary expenses, like groceries right, they offer other attractive benefits in a
or gas, are going to cost more — and in turbulent economy. These investments are Historically, having an insulated
some instances much more than one is ac- said to be “non-correlated” to the public alternative portfolio in a time of
customed — without a relative increase in markets, which essentially means that their inflation has helped create a
work related income. value changes according to variables not di- more balanced portfolio to
Investing in “hard assets” such as gold rectly related to the public markets. counteract inflation.
or other precious metals, oil or other natu- As investors are considering their options,
ral resources, and even art have historically they should be reminded that that any income
been protective investment vehicles to both generated from bonds or other fixed income Although all “hard asset” options can be
protect against inflation, and in some in- instruments should factor in the inflation rate effective (and have been in the past) there is
stances, turn a future profit. When an eco- to determine their “real return” or “real inter- one critical element that, when coupled with
nomic shift happens, investors seek est rate.” Essentially, this is the gross return. hard assets, can have an exponential effect in
alternative investments like commercial real For example: If you earn a 5% return from a not only defending against inflation, but gen-
estate to their traditional public stock, bond bond, and the inflation rate is 2%, then the erating more real-time profit: income.
and cash portfolios. real return / real interest rate is 3%. Real estate, namely, income-producing

28 San Antonio Medicine • May 2018