Investment Fundamentals

4 Private Equity Real Estate Strategies

9th April 2023

In private equity real estate, assets are typically classified into four primary strategy categories based on investment strategy and perceived risk. These categories include core, core-plus, value-added, and opportunistic. The key differentiator among them lies in the risk and return profile, akin to ascending a ladder where higher risk is compensated with the potential for higher returns.

Core: Core assets, situated at the bottom of the risk-return ladder, are considered the safest. These assets comprise stable properties in prime locations, boasting high occupancy rates and creditworthy tenants. While core assets offer stability, they have limited upside potential due to their already achieved market rents, resulting in single-digit annual returns.

Core-Plus: Moving up the ladder, we encounter core-plus strategy assets that share similarities with core assets but entail one or more exceptions introducing additional risk. Such exceptions might involve the asset's age, condition, tenant credit, or location. Core-plus investments generally yield annualized leveraged returns ranging from 10% to 14%.

Value Add: The value-add category represents a greater step in the risk-reward continuum. Value-added assets present opportunities for improvement, such as addressing significant vacancies, renovating, or enhancing the quality of the rent roll. With a well-executed business plan, value-add investments can evolve into core-plus properties, providing leveraged returns in the high teens, between 15% to 19%.

Opportunistic: At the top of the risk ladder are opportunistic assets, characterized by extreme turnaround situations. These deals involve major obstacles to overcome, such as extensive vacancies, structural issues, or financial distress. Opportunistic investments carry the highest risk and necessitate substantial expertise, potentially delivering annualized leveraged returns over 20%.


For investors, comprehending the risk-return relationship across these real estate investment strategies is crucial. The level of return should align with the associated risk. Moreover, in value-add and opportunistic deals, the expertise of the sponsor and their ability to execute a well-crafted business plan play vital roles in project success. A well-balanced commercial real estate portfolio may incorporate some or all of these investment categories, tailored to individual risk tolerances. At the RealRaise Marketplace, offerings span the risk spectrum, catering to various investor preferences and requirements.

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