CORE
Core investing is the most conservative strategy, and might only include properties offering lower-risk and lower potential returns because they exist in well-populated or well-traveled locations. It includes the buying and holding of stable assets characterized by their high quality, low vacancies, and / or strong markets or relative location. These properties offer predictable cash flows and are commonly comprised of fully leased, multi-tenant structures.
Often, core investors favor yield over appreciation and will view real estate as a relatively safe place to invest capital. This investment approach can be seen as an alternative to bonds with the added benefit of being backed by a physical asset. Additionally, it offers a potential hedge against inflation.
The expected IRR is usually below 10%.
CORE - PLUS
The core-plus investment strategy is similar to core. It seeks out assets that are still fundamentally sound and appealing, but offer an opportunity to add value to enhance returns.
Naturally, these investments have a higher degree of risk (like upcoming lease expirations) or value-add opportunities (such as mild renovation).
VALUE - ADDED
This is a medium-to-high-risk/medium-to-high-return strategy. These investments typically include properties that have significant execution risk to add the necessary value to drive enhanced returns like major renovation, repositioning, or lease-up to stabilization.
It involves buying land or under leased or mispositioned property, improving it in some way, and selling it at an opportune time for gain. In the value added strategy, much of the return will come from appreciation over yield. The strategy is based on the idea that you can add value initially to see greater returns upon disposition.
Leasing is often considered a critical part of a value-added strategy. Effective brokerage teams will be able to market effectively, attract strong tenants, and negotiate competitive deals to boost the value at time of disposition.
The expected return upon disposition of the asset usually is from 10% to 15%.
OPPORTUNISTIC
This is a high-risk/high-return strategy. Investors pursuing this strategy typically seek out properties that need a significant amount of work either because of renovation needs, high vacancy or relative strength of the market.
New development is often included in this category. Because so much work needs to go into adding value to the asset, it can yield the highest returns, but with the greatest level of risk.
Some opportunity funds also will invest in securitized or non-securitized public or private debt instruments, with the objective of privatizing, repackaging, restructuring and then selling off these interests. Investments are tactical, and may also include financial arbitrage strategies or strategies focused on unwinding or working out complex financial structures or large, improperly leveraged portfolios. Opportunistic strategies can employ leverage levels up to 60% or higher.
Typically, the asset is held for 3-7 years, with the goal of achieving a 15%+ IRR.
