Core Investment Pillars: Understanding risk and return

Author Lisa Stern Read bio
Tags: investing risk return
Date: April 15, 2022

What is core real estate? The term “core investment” refers to class A real estate located (almost by definition) in high-quality areas, with high-income tenants. Successively their core investment assets are purchased with little to no debt.

Check out the classification guide we’ve written for you in order to better understand office buildings (some of the most valuable real estate out there).

LINK: Office Building Classification Guide: Classes A, B & C

Due to their relatively low-risk profile, investors typically call core investment opportunities to bond several different types of equity.

 

Core Investment: Here’s What Investors Need To Know About It

Core investment is interchangeable with ‘income’ in the stock market. Core property investors are usually thought to be conservative investors, that are looking to generate stable income with very low risk

Core investment properties require very little hand-holding by their owners, so they are typically acquired and maintained as an alternative to bonds. 

The core type of investing can be close to passive investing (when buying properties directly). Also, the core property requires little-to-no asset management and is typically occupied with credit tenants on long-term leases.

Modern building with wavy roof

Real Estate Core Investing: Where Do You Start?

Most discussions about Commercial Real Estate are about how to make it relatively low risk. It’s true that you can get a higher expected return by going higher risk, but past a point – that’s not core investing (or any investing), that’s speculating.

Also, if your financial strategy promises to return a lot more than the market – it’s probably not a very safe strategy.

Generally, people aren’t huge fans of undertaking unnecessary risks. That’s not because they don’t like real estate (core investment is a crucial category for some people), but it just makes more sense to be sure you’re doing everything possible to minimize your risk in the process.

And in that process, the best chance you have is with a consultant. Use IPG’s knowledge of the market to make core investments. Our cooperation grats you less of a headache, and it will be a stronghold until your portfolio is big enough to diversify.

What Are Core Holdings

Core holdings are the central investments funds of a long-term portfolio, and it’s essential for reliable service and consistent returns.

Although core investments and core holdings don’t make up the entirety of a portfolio, they are typically held alongside secondary investments, targeting a specific sector or industry group.

Typical Core Investments of The Core Holding

Core holdings often consist of index funds. There are also individual stocks that anchor the long-term performance of your core investment portfolio. For example, Apple, Amazon, and Google have all performed well over the past decade and should remain competitive in the upcoming years. 

Core Plus Real Estate Investment

Core plus is a core investment management style that enables managers to augment a core investment base of some holdings. Core plus investment uses instruments that usually offer greater risk, but you can also expect greater potential returns.

Core plus investment strategies are primarily associated with fixed-income funds, like equity funds; those can also use core plus strategies.

Value-Add Real Estate Investments

Value-Add investment can be explained as ‘growth’ in the stock market. It is associated with moderate to high risk

These kinds of properties usually lack the cash flow at acquisition, but they do have the potential to produce a remarkable amount of income – once the value has been added. 

Value-added buildings tend to have problems such as:

  1. Occupancy issues
  2. Management problems
  3. Deferred maintenance

…or even a combination of all three.

That is why these core investments require a deep knowledge of real estate, strategic planning, and daily oversight by their owners. That’s where IPG can assist you.

Core investment, Core Plus, Value-Add and Opportunistic investing are all terms used to define the risk and return characteristics of a real estate acquisition.

They range from conservative to aggressive and are defined by both the physical attributes of the property and the amount of debt used to capitalize on a project.