Core And Core Plus Real Estate Funds: What Are They?

Core and core plus real estate funds are the most popular commercial investing strategies. They offer a blend of income and growth and can be purchased through publicly traded REITs or privately.

They typically target properties that require light physical improvement or management efficiency enhancements to improve cash flow. They also seek to invest in properties with long-term leases and low vacancy rates.

What Are Core And Core Plus Funds?

Core and Core Plus Real Estate Funds are investments that mix income and capital growth. These funds are ideal for investors looking to diversify their portfolios while maintaining a low-risk tolerance.

They are generally a combination of newly built or recently renovated properties in good locations and leased to suitable tenants. They also have minimal deferred maintenance requirements.

These properties can produce consistent, predictable cash flow to survive economic crises or prolonged recessions.

They are seen as stable, income-producing assets that attract institutional investors, like pensions. Core assets typically generate 7%-10% annualized returns with minimal leverage.

But even though they are good in many ways, it is essential to choose whether Core or core plus real estate is what you need.

Core Properties

Core properties are a significant category of commercial real estate. They are characterized by strong cash flow, minimal deferred maintenance, and a stable asset base.

These properties are generally built using high-grade materials and are leased to long-term tenants. They generate stable income for their owners and are a good investment strategy for investors who want a steady return on their capital.

They are also an excellent opportunity for investors with low-risk tolerance but still desire some capital appreciation. They are available to institutional and individual investors through publicly traded investments or partnering with private equity firms.

These assets are older and more dated than value-add properties but still have strong occupancy and quality tenants. They may require minor property upgrades and some deferred maintenance, but they can provide experienced investors with opportunities to increase their cash flows. They can do this by strategically repositioning the assets, enhancing management, and optimizing operations.

Core Plus Properties

Core plus properties are a type of real estate that represents one notch above the risk-return scale. This category of commercial real estate is often purchased with more outstanding debt, but cash flow from the property can produce higher returns.

A core property typically has high occupancies, a solid tenant base, and is in the best locations. It’s also new or very close to new and has minimal capital expenditures yearly.

However, there are some exceptions to the rule. For example, a building may have a slightly outdated structure or a higher leverage profile than the average core asset.

The property may need a light physical improvement or management efficiency enhancement to boost cash flow and increase returns. A core plus investment strategy aims to buy the property for a fair price and to make some renovations or improvements to bring it up to nature or heart plus standards. This is a beautiful investment strategy for investors with moderate risk tolerance and seeking income and growth from their commercial real estate investments.

Core Plus Strategy

Core Plus is an alternative investment strategy that seeks properties in excellent locations that need only minor cosmetic or maintenance work. Additionally, these assets have a strong, but not ultra-premier, tenant base and are in an evolving and growing area.

The ‘Plus’ in the Core Plus strategy is that these investments can be highly profitable as they generate a steady stream of rental income for you. This income can help offset losses in your other assets, reducing the impact on your portfolio’s overall performance.

This strategy is one notch higher on the risk-return scale than opportunistic funds and is gaining traction with some of the world’s top alternative investment managers..

This strategy can especially benefit those seeking stable, moderate investment growth. It can also be a great addition to any diversified private real estate portfolio.

Also Read: Wondering Where To Invest? Your Answers To These Questions Might Help!