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Investment Fundamentals

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How does real estate provide a hedge against inflation?

By definition, a hedge is a type of investment that helps protect owners and investors against the decreasing purchase power of money when inflation hits. Our research into the historical inflationary trends, coupled with our team's experience, shows that commercial real estate (CRE) investments can act as a hedge in times of above-average inflation.

Two major indicators of inflation, the 1980 Consumer Price Index (CPI) and the Producer Price Index(PPI) rose to 7.9% and 10.0% in February 2022, the steepest yearly increase since February 1980.

Inflation can meddle with the CRE market in many ways. But a 2011 study titled Inflation and Real Estate Investments concluded that 'real estate can be considered a perfect hedge against inflation, under the strong assumption that future rent growth and discount rates move in line with expected and actual inflation rates.'

Keeping in mind that most CRE investments usually earn money through cash flow and appreciation, there are mainly four ways they can act as a hedge against inflation:

One: A property's inflation resiliency largely hinges on the dynamism of marking rents to market. Shorter leases enable property owners to change the rental rate of any new leases to keep on pace with rising inflation'“renting an apartment unit for $1,250 to a new tenant instead of the previous rental rate of $1,100, for instance. This can help protect the true value of cash flows and subsequent investor returns.

Two: On top of the fixed-lease term, some CRE leases may include negotiated annual rent escalations to keep up with inflation.

Three: The underlying business model of the tenant can also bolster the strength of the property's ability to hedge against inflation. For example, although retail owners cannot usually adjust rents as quickly as a hotel or multifamily building, many retail leases include 'Percentage Rent,' which essentially translates into a supplemental rent payment that is directly tied to the gross sales of the tenant, be it a Walgreens or Starbucks. When inflation increases the costs of their own goods and services, many of these additional costs are pushed on to the consumer through increased prices on the final product. Provided that that demand doesn't fall by more than the amount of price increases, gross sales of the tenant would rise, which in turn would increase the Percentage Rent paid to the property owner.

Four: For properties financed with long-term fixed-rate debt, when rents go up, net cash flows (what is left over after servicing debt and reserving for capital expenditures) increase, all else equal.

Overall, what typically differentiates a hard asset like real estate from a soft asset like stocks and bonds is the lever owners can pull to control the NOI. A property that has more of these levers generally offers more control to the owner to change the financial outcome and cash flow during inflationary hiccups instead of letting the economy decide the real returns on investments.

Want to learn more about how inflation and commercial real estate are related? Read the full whitepaper from the Office of our CIO.

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CrowdStreet, Inc. (“Crowd Street”) offers investment opportunities and financial services on this website.

Broker dealer services provided in connection with an investment are offered through CrowdStreet Capital LLC (“Crowd Street Capital”), a registered broker dealer, Member of FINRA/SIPC. Information on all FINRA registered representatives can be found on FINRA’s BrokerCheck. Additional information is available in Crowd Street Capital's Client Relationship Summary (Form CRS).

Advisory services are offered through CrowdStreet Advisors, LLC (“Crowd Street Advisors”), a wholly-owned subsidiary of Crowd Street and a federally registered investment adviser. Crowd Street Advisors provides investment advisory services exclusively to private funds and does not otherwise provide investment advisory services to the Crowd Street Marketplace or its users. Additional information is available in Crowd Street Advisors’ Form ADV.

Crowd Street and its affiliates do not endorse any of the opportunities that appear on this website. Investment opportunities available through Crowd Street are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. Diversification does not guarantee investment returns and does not eliminate the risk of loss. All investors should consider their individual factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Private placements are illiquid investments, in that they cannot be easily sold or exchanged for cash, and are intended for investors who do not need a liquid investment.

Performance information presented on this website has not been audited or verified by a third party. By accessing the Crowd Street Marketplace, you agree to be bound by its Terms of UsePrivacy Policy, and any other policies posted on this website. The Crowd Street Marketplace is only intended for accredited investors.
For more information, see Legal Documents and Important Disclosures.

Ⓒ 2025 Crowd Street Ltd. All Rights Reserved

CrowdStreet, Inc. (“Crowd Street”) offers investment opportunities and financial services on this website.

Broker dealer services provided in connection with an investment are offered through CrowdStreet Capital LLC (“Crowd Street Capital”), a registered broker dealer, Member of FINRA/SIPC. Information on all FINRA registered representatives can be found on FINRA’s BrokerCheck. Additional information is available in Crowd Street Capital's Client Relationship Summary (Form CRS).

Advisory services are offered through CrowdStreet Advisors, LLC (“Crowd Street Advisors”), a wholly-owned subsidiary of Crowd Street and a federally registered investment adviser. Crowd Street Advisors provides investment advisory services exclusively to private funds and does not otherwise provide investment advisory services to the Crowd Street Marketplace or its users. Additional information is available in Crowd Street Advisors’ Form ADV.

Crowd Street and its affiliates do not endorse any of the opportunities that appear on this website. Investment opportunities available through Crowd Street are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. Diversification does not guarantee investment returns and does not eliminate the risk of loss. All investors should consider their individual factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Private placements are illiquid investments, in that they cannot be easily sold or exchanged for cash, and are intended for investors who do not need a liquid investment.

Performance information presented on this website has not been audited or verified by a third party. By accessing the Crowd Street Marketplace, you agree to be bound by its Terms of UsePrivacy Policy, and any other policies posted on this website. The Crowd Street Marketplace is only intended for accredited investors.
For more information, see Legal Documents and Important Disclosures.

Ⓒ 2025 Crowd Street Ltd. All Rights Reserved

CrowdStreet, Inc. (“Crowd Street”) offers investment opportunities and financial services on this website.

Broker dealer services provided in connection with an investment are offered through CrowdStreet Capital LLC (“Crowd Street Capital”), a registered broker dealer, Member of FINRA/SIPC. Information on all FINRA registered representatives can be found on FINRA’s BrokerCheck. Additional information is available in Crowd Street Capital's Client Relationship Summary (Form CRS).

Advisory services are offered through CrowdStreet Advisors, LLC (“Crowd Street Advisors”), a wholly-owned subsidiary of Crowd Street and a federally registered investment adviser. Crowd Street Advisors provides investment advisory services exclusively to private funds and does not otherwise provide investment advisory services to the Crowd Street Marketplace or its users. Additional information is available in Crowd Street Advisors’ Form ADV.

Crowd Street and its affiliates do not endorse any of the opportunities that appear on this website. Investment opportunities available through Crowd Street are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. Diversification does not guarantee investment returns and does not eliminate the risk of loss. All investors should consider their individual factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Private placements are illiquid investments, in that they cannot be easily sold or exchanged for cash, and are intended for investors who do not need a liquid investment.

Performance information presented on this website has not been audited or verified by a third party. By accessing the Crowd Street Marketplace, you agree to be bound by its Terms of UsePrivacy Policy, and any other policies posted on this website. The Crowd Street Marketplace is only intended for accredited investors.
For more information, see Legal Documents and Important Disclosures.

Ⓒ 2025 Crowd Street Ltd. All Rights Reserved