At a Glance —
- Commercial real estate is an excellent investment consideration for investors of all profiles — conservative, moderate or aggressive
- CRE offers a variety of investment strategies, differing by property profile, risk and return levels and expected returns
- Core and core-plus are best suited to conservative and conservative to moderate investors; value-add suits moderate to moderately aggressive investor profiles and opportunistic is targeted to the most aggressive investor types
- With a wide variety of investment options, you can easily find CRE investment opportunities that are right for your portfolio, matching your investor profile, strategy and goals
No two investors are alike in profile, financial objectives or risk tolerance. Fortunately, commercial real estate offers investment options for every investor profile, with a wide swath of selections including asset class, location and investment strategy.
Let’s look at the 4-investment strategies to understand how they correspond to investor profiles. These classifications are — core, core-plus, value-add and opportunistic.
Core investments are considered the lowest risk. Properties that fit into this category offer low risk and generally provide nominal, yet stable returns. This investment classification is ideal for conservative investors willing to sacrifice returns in favor of security.
Core-plus investments are characterized as low to moderate risk. Unlike core investments, where much of the expected return is derived from income, core-plus investments offer a higher proportion of the asset’s expected return from appreciation. This investment classification is ideal for moderate investors.
Value-add investments are considered moderate to high risk. Value-add properties typically underperform in cash flow for a variety of reasons — occupancy, management issues, infrastructure and maintenance requirements or some combination thereof.
The opportunity — and potential returns — for value-add investments typically stem from the chance to make corrections to the identified gaps. This is an investment with the potential for improved returns and overall appreciation when a corrective plan is applied.
This investment classification is ideal for those investors who are moderate and perhaps leaning toward the aggressive investor profile.
Opportunistic investments are considered high-risk. However, hand in hand with this higher risk also comes an opportunity for outsized returns. This category typically averages annual returns of 20% or more.
Opportunistic investments require the most work as well as the most patience (read, longer timeline for payback, and payoff). These investments typically involve more complicated projects like ground-up developments, land development, or repositioning a building from one use purpose to another.
This investment classification is ideal for those investors who have an aggressive investor profile with a larger tolerance for risk and willing to accept longer timelines for the potential to achieve high returns.
These investment classifications help set risk and return expectations and importantly, help you select investment opportunities which align with your investment profile and objectives, risk capacity and timelines.