Carlyle’s Rubenstein sees commercial real estate undervalued

The US commercial real estate market is undervalued relative to other sectors amid elevated interest rates, while Big Tech stocks could take a breather after record-setting rallies, said David Rubenstein, co-founder and co-chairman of The Carlyle Group.

“(The US) commercial real estate certainly seems undervalued given the effects of high interest rates on real estate in recent years,” he said in an exclusive interview with The Korea Economic Daily.

“Inflation is coming close to acceptable levels and interest rates are likely to come down this year,” Rubenstein said in a recent email interview.

Despite his optimism about the US economy, the investment guru doubted whether the so-called Magnificent Seven stocks can continue their bull runs after powering the US stock market to new record highs this year.   

“One should be a bit concerned, though, about whether the ‘Magnificent Seven’ companies can continue to meet or exceed investors’ expectations,” he noted.

The Magnificent Seven stocks are Nvidia, Meta, Amazon, Microsoft, Alphabet, Apple and Tesla. They logged double or triple-digit returns last year.

In his previous interview with The Korea Economic Daily in August 2022, he picked IT and financial service companies as the sectors with room to grow. 

He advised investors to set a realistic rate of return and be prepared to exit an investment when a reasonable rate of return has been achieved.

Carlyle is one of the world’s top three investment firms with $426 billion under management as of the end of 2023.

The following is an edited transcript of the interview with Rubenstein:

Q: What is your view on the US economy and market?

“The US economy is doing quite well – and in many ways is pulling well ahead of other large economies. Inflation is coming close to acceptable levels and interest rates are likely to come down this year. Job growth is also strong and real wages are increasing. One should be a bit concerned, though, about whether the ‘Magnificent Seven’ companies can continue to meet or exceed investors’ expectations.”

Q: Which sectors or companies in the US do you think are undervalued today?

“Commercial real estate certainly seems undervalued given the effects of high interest rates on real estate in recent years.”

Q: On geopolitical risks:

“The current events around the globe will impact investments somewhat, but these events have largely been taken into account by investors and are reflected in the current asset prices.”

“The more challenging factors to take into account are those that are not currently known or anticipated. It is thus hard to take the impact of these potentials into account. Will China invade Taiwan? Will Russia invade another country? No one can really know or properly assess the likely impact of such events, but one should never assume that the unthinkable is impossible.”

Q: Do you expect a change in the US-China relationship after the US presidential election in November?

“I think it is too early to predict what either President Biden or Trump’s policies would be in the international arena, particularly concerning China, but I suspect both President Biden and President Trump, while protecting American interests, would see value in an improved US-China relationship.

Q: On emerging markets, including Korea:

“I think emerging markets have some challenges, but I am very bullish on Korea and its growth prospects and continued good relationship with the US.”

“Investors should pay particular attention to the fees involved, to the availability of key data about performance, and to the price of the investment relative to the pricing of similar assets.”

Q: Three most important points for successful investing:

“If I had to pick three, they would be: (1) the refusal to accept conventional wisdom about a particular investment or investment area; (2) the enormous attention paid to detail; and (3) the enjoyment of engaging in the battle of wits that investing has become – the sheer 'love of the game' of investing.”

Q: Tips for fund investors:

“The three most important words of advice are: (1) to have realistic expectations on the rates of return; (2) diversify your investments concerning the types of investments and the firms which are doing the investing; and (3) to select money managers with proven track records, reasonable fees and a reputation for integrity and strong ethical behavior as well as regular and detailed reporting on their performance and fees.”

Q. Investment principles:

“Investors should not be lured into chasing unrealistically high rates of return – they rarely materialize. Investors should be prepared to exit an investment when a reasonable rate of return has been achieved. An investor should not get greedy by holding an investment well past a normal and achievable rate of return.”

Write to Young-Yeon Kang at yykang@hankyung.com

Yeonhee Kim edited this article.