CORE
These are fully stabilized properties with credit quality tenants on long term leases (9 to 15 firm) and no planned work improvements. Usually these properties are purchased by institutional investors that are looking for a safe reliable return.
For instance a single-let Haussmannien building located in Paris’ Central Business District would fit in with the strategy.
Recommended holding length period: over 10 years
Expected Internal Rate of Return: 6 to 10% per annum
CORE +
Investors who generally want a safe return, but are looking for a little bit of upside prefer Core Plus.
A common Core Plus investment would be a multi-let office building in a Central Business District in a primary market. The property would have good tenants, but might have some upcoming lease roll or a few work improvements to undertake.
Recommended holding length period: 7 to 10 years
Expected internal rate of return: 10 to 13% per annum
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 with an Asset Manager to increase the occupancy or fix the physical deficiencies.
Once the property has been stabilized, these properties may be sold to Core investors.
Recommended holding length period: below 5 years
Expected internal rate of return: 13 to 15% per annum
OPPORTUNIST
There are a lot of different types of investments that fall into this category, from non pre-leased 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.
Undertaking this kind of investments requires a lot of work and often mobilize several Asset Managers full-time during most of the holding period.
Recommended holding length period: below 5 years but exceptional cases
Expected internal rate of return: 15 to 30% per annum combined to 1,8x / 2,5x Equity Multiple
