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Weekend View - September 29, 2024: A Risk-Adjusted Return Case Study
Manage episode 448839301 series 3613496
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In this episode of Multiple Perspectives, Daniel Brereton breaks down the concept of risk-adjusted returns and explains how it applies to private real estate investing. Daniel revisits key metrics from previous episodes, focusing on how to evaluate potential returns relative to the inherent risks of an investment. He also discusses how EquityMultiple assesses risk-adjusted returns when comparing investment opportunities, particularly in private markets, where volatility is less observable than in public markets.
Using a case study of the Norwalk Portfolio Senior Loan, Daniel illustrates how EquityMultiple’s approach to underwriting and comparable analysis helps investors gauge the potential risk and reward. The episode ends with a reminder of how investors can explore current opportunities at EquityMultiple and the advantages of joining their platform.
What is a Risk-Adjusted Return?
- Daniel explains that a risk-adjusted return measures the growth of an investment in relation to the chance it may not perform as expected. This calculation helps investors assess the quality of a return when considering the associated risks.
Public vs. Private Markets:
- In public markets, the Sharpe ratio is a popular tool used to assess risk-adjusted returns by measuring volatility and comparing it to returns.
- In private real estate markets, where volatility is not easily measurable, investors can still compare risk-adjusted returns by evaluating similar deals in terms of leverage, location, and potential risk.
The Norwalk Portfolio Senior Loan:
- A senior debt investment backed by three mixed-use buildings, the Norwalk Portfolio offers a 12% interest rate, significantly higher than comparable loans in the same market (approximately 10%).
- With a 90% occupancy rate, compared to the market average of 75%, the deal represents a strong risk-adjusted return for EquityMultiple investors.
Interested in learning more about risk-adjusted returns or exploring current opportunities with EquityMultiple?
Sign up for an EquityMultiple account today to view our latest offerings, including the Norwalk Portfolio Senior Loan.
For any questions, feel free to reach out to our Investor Relations team at [email protected].
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