Skip to main content

Core, Core Plus, Value Add, and Opportunistic - 4 Commercial Real Estate Strategies

For family offices new to the investment arena I thought I would share some insight as to the types of real estate investments that are available.   These types are defined as Core, Core Plus, Value Add, and Opportunistic.  Most commercial real estate investors will focus one or two of these strategies when investing. 
Core:These are fully stabilized properties with credit quality tenants on long term leases.  These investments are well located in primary and secondary markets.  Usually these properties are purchased by institutional investors that are looking for a a safe reliable return.  Core investments in commercial real estate are often purchased as a way to diversify an investment portfolio.
Core Plus: Investors who generally want a safe return, but are looking for a little bit of upside prefer Core Plus.  These properties are match the physical description of Core investments, but usually have some opportunity to increase the Net Operating Income or NOI.  A common Core Plus investment would be a class A office building in a CBD in a primary market.  The property would have good tenants, but might have a lot of upcoming lease roll.  Core investors would see this lease roll as a threat to their reliable income, but Core Plus investors might see this as an opportunity to increase rents.
Value Add:This strategy is exactly what it sounds like.  Value Add investors are looking for the opportunity to increase the value of their commercial real estate investments.  Often these properties will have a high vacancy rate or some physical obsolescence.  Value Add investors will buy these properties at a discount, and work to increase the occupancy or fix the physical deficiencies.  Once the property has been stabilized, these properties may be sold to Core investors.
Opportunistic: There are a lot of different types of investments that fall into this category, from ground up development, to adaptive re-use, to emerging markets.  The unifying principle is that the investor is willing to take entrepreneurial risk to achieve out-sized returns.
These are not strict definitions, just broad guidlines that I hope will provide some insight for current and potential family office real estate investors.
Labels:

Comments

Post a Comment

Popular posts from this blog

Harvard's Endowment commits to a target investment range into real estate between 10% to 17% for 2016

Years ago, before the downturn I was paying very close attention to the investing allocation of my Alma Maters Endowments Investing Strategy HMC (Harvard Management Company), especially in the area of real estate.  I believe that not only was Harvard a great place to understand the importance of investment allocation strategies before the downturn but even more so since the downturn. In fact, investors who are looking to enhance the performance of their investment portfolios probably won’t find a better investment model than the one used by the $37.6 billion endowment for Harvard University. The entity in charge of managing the endowment, Harvard Management Company (HMC), has accrued an impressive investment track record across its 41-year history. As of fiscal year 2015, the endowment had produced an average annual return of 12.2% – 290 basis points higher than the average 9.3% return of a typical U.S. 60/40 stock and bond portfolio. The methodology behind HMC’s success is th
1 comment
Read more

Real Estate Analysis

Just a little while ago myself and my patriarch sat down with another family and began discussing real estate and our strategy.  As the family office really didn't understand real estate, they started to ask questions on how we looked at deals and evaluated opportunities. Thinking back I think that a lot of the questions came from the fact that they created their wealth in the LBO market and thus understood the different nuances of businesses.  Now many families created their wealth from a business but this particular family was involved in 39 different industries, thus I believe their frame of reference was a little different. Our family office created their wealth in real estate and one big part of that has to do with the degree of analytics that is used in our office.  In fact, I have been asking for about 10 years why people are not more analytical about real estate decisions.   All too often a family office is approached by real estate funds or operators because they work
Post a Comment
Read more

So you want money from a family office huh?

A lot of people want to access the family office market . The reason is because they believe that it's an area which they can raise a lot of capital and often in a manner that is much easier. Although the check size might be bigger there's many many things that people don't realize when dealing with a family office.  In my past I had the ability to raise capital from individuals to family offices to private equity funds, insurance companies and institutions. The biggest difference with institutions or institutional capital is that their decisions are typically made based upon parameters. They have a box or boxes in which they are to invest into. In addition, it's not their own money so because of that they are often removed from any emotions. Sure they want to do a good job but let's face it its not their own money!!  Family offices, however are different. I would say that family office investors are much more like individual investors. In many ways very si
Post a Comment
Read more