The four primary ways investors can gain exposure to commercial real estate are private equity, public equity, private debt and public debt. This Viewpoint is the second in a series that will explore the relationship between each investment vehicle, or quadrant.

• Commercial mortgage-backed securities (CMBS) allow fixed-income investors to gain exposure to commercial mortgages based on their desired risk tolerance. Pricing reflects risk-free interest rates and risk premiums, expressed through spreads.
• CMBS subordinate bonds are typically more sensitive to real estate conditions than AAA-tranches.
• BBB-rated CMBS total returns are a function of the high-yield corporate bond returns, current leveraged and one-quarter lagged unleveraged property returns.

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1 CBRE Econometric Advisors invited Dr. Randall Zisler to co-author this paper on the real estate quadrants. His unique approach reflects a multifaceted career as a Princeton University professor, Goldman Sachs research director, pension fund consultant, and investment banker.

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