Core plus real estate strategy sits between core and value add portion of the real estate investment risk spectrum. It is one of the main types of investment styles applied by private real estate funds or private equity funds in investing in real estate.
Core real estate is usually located in prime locations, new or recent construction and a sense of shiny buildings managers always proud to show the investors. Capital appreciation plays an important factor for core, but these assets were purchased for their consistent cash flow.
Core plus investments include a higher degree of risk due to leasing or market risks than core real estate; however, the risk can be contained and managed easier than value add real estate.
The definition of core plus real estate changes depending on the point in the cycle, but we have listed out some common characteristics:
- Degree of leasing risk only a portion of the property (less than 30% of the total building).
- Older building with a greater degree of capital expenditure risk
- Secondary or suburban locations
The above factor, which will define an investment as a core plus, is dependent on the market perception of the importance of the specific factor on income or capital value growth.