Core Plus Investment

Core Plus Investment. CORECORE PlusValue AddOpportunisticThe riskreturn profile of core investments is conservative These assets are low risk because they are in high quality locations they have strong creditworthy tenants and they are newer properties that are well built Because they are less risky than the other types of investments we will cover they generate lower returns They generate stable and consistent cashflow and their values tend to be the most stable as well In general investing in core assets is the most passive form of direct CRE ownership–another reason why returns are lower Even though these assets are considered the least risky they inherently have risk and will require a team to oversee the operations Sometimes unexpected challenges arise even at the assets that appear most stable Buyers of core properties are generally institutional investors with a very low cost of capital and very conservative business plans Operationally they are very efficient because they have high occupancy rates and longterm lea Core Plus assets meet much of the abovementioned criteria however they are missing one or more of the characteristics of a Core asset For this reason they are slightly higher on the riskreturn profile The property could be new and leased to highquality tenants but is located in a secondary market or in the suburbs It could be in a great location in a gateway market but it is 20 years old (like the photo below) and doesn’t have all the bells and whistles the top tenants are looking for Core assets have limited risk and therefore generate limited returns The returns are slightly higher than Core assets (200300 bps levered) and have slightly more risk As you can imagine larger investors and institutions who are seeking better returns than those obtained through Core investments are the primary buyers of Core Plus deals These deals are often too large or don’t provide the yield required by syndicators They generally use conservative levels of debt although slightly Value Add properties are those with a moderate to high riskreturn profile These properties sit between stable Core Plus assets and Opportunistic deals that typically involve substantial construction risk Value Add properties are underperforming or underutilized assets that can be improved to drive greater NOI and cash flow These investments can result in substantial returns if executed efficiently Typically Value Add properties are in strong locations but underperform because of dated finishes deferred maintenance or have simply been operated poorly Value Add investments require hands on operators who have experience turning around assets Therefore it is vital that the investor/sponsor have a track record and a team capable of carrying out the project If the project involves construction then there is added construction risk not found in Core or Core Plus investments The objective of the strategy is to buy at the right price invest capital in physical improvements or Opportunistic deals are those that involve the most risk and the greatest potential upside This asset class is not for the faint of heart It is also not for inexperienced investors and operators Land entitlement or assemblages groundup development major renovations of existing property and adaptivereuse projects are examples of opportunistic investments Because of the complexity involved in successfully executing an opportunistic business plan the team involved must be experienced and extremely competent These investments have very little if any cash flow so projects of this type require well capitalized investors or financial engineering to be able to cover the costs during the improvement phase of the business plan Long lead times are another reason for which opportunistic deals are the most risky When you are doing ground up development for example you are speculating about what the future will look like in 25 years Much can happen with regard to the economy Author Greg Barrett.

Core plus investments are low to moderate risk and return slightly more than core The timing is similar to core except you should taper off a little earlier at the end of the cycle/super cycle since it will experience losses before core does If you&#39re looking for core plus investments I&#39ve explored many options.

Investment Types: Core, Core Plus, Value Add, & Opportunistic

Core plus is an investment management style that permits managers to augment a core base of holdings with instruments that offer greater risk but greater potential return.

Core Plus Definition investopedia.com

Investment Objective The Core Plus Fixed Income Strategy seeks to add +150 bps of annualized excess return over a broad market fixed income index over a full market cycle by emphasizing relativevalue based sector allocation researchbased subsector/security selection and duration/yield curve/currency management 12.