When you read more about commercial real estate opportunities, you’ll notice that the offers all fall into one of four categories: Core, Core-Plus, Value Add, and Opportunistic.
These four categories define the strategies and risk characteristics necessary to profit from commercial real estate investments.
Core – Core property tend to generate predictable cash flows. The properties are often positioned in strong markets, and have strong stable tenants. They tend to be lower returning, yet lower risk opportunities.
Core-Plus – Like Core investment, Core-Plus properties generally are well located and have a strong tenant base. The risk difference is found in minor details like lease renegotiation, or building improvements. Because of the risk there is profit potential by reducing the risk (lease renegotiation and extension, fixing the building issues, etc).
Value Add – Buying a property and improving that property in some way defines the 'Value Add' opportunity. The improvements can comes in many forms including enhancing the physical property itself or increasing the operational efficiency through replacing management, placing new tenants, increasing the quality of tenants or renegotiating leases of existing tenants.
Opportunistic/Development – These properties require extreme enhancements including rebuilds, new development, etc. A full hotel remodel, a ground-up rebuild, or a repurposing of a vacant building is a prime example of an opportunistic property. The reward can be extremely high, but to do it properly requires a high risk tolerance, patience and the ability to keep funding until something works.
The SMARTCAP Group focuses on Value Add and Core-Plus opportunities for our investors.