Commercial real estate values have fallen in recent months due to rising costs of capital and higher interest rates. While property price declines have moderated in line with the drop in 10-year U.S. Treasury yields since their late October highs, some investors wonder if 2023 might be a year when they should avoid real estate investments entirely.

We argue that could be a mistake: We believe an actively managed approach to real estate, having exposure to a combination of private market assets in strong locations with attractive employment centers, demographics, and both senior-rated fixed and floating rate debt securities can help optimize investor’s portfolios by providing potential income, diversification, and inflation protection, as occurred over the past few volatile years in both real estate and financial markets.