Successful investing isn’t based on formulas; it’s based on expert knowledge and effective strategies.

Determining what type of real estate investment is best for your portfolio hinges on understanding the relationship of risk and return. There are three primary categories of commercial real estate investment strategies, each offering certain risk and return characteristics. These general asset level investment strategies include Core/Core+, Value Added, and Opportunistic. These strategies have served SAR and its clients well for more than two decades, and it will continue to serve us well for many more decades to come. 


Here's a look at the three asset categories, and an explanation of their key characteristics and risk factors.


Core real estate investment programs generally utilize conservative strategies for lower-risk investments. Investors in Core assets typically seek a secure return, largely generated from ongoing current property cash flow. Representative Core investments include properties with long term net leases to strong credit tenants located in well-established markets.

The Core Plus segment is a variation on Core investing, offering slightly higher overall returns. The higher returns from Core Plus investments relative to Core investments may reflect such factors as somewhat higher releasing risk, lesser credit leases, and/or secondary market locations.

Typically, Core and Core+ investments have a long-term holding period of five to ten years. While overall returns in the Core and Core+ categories are generally consistent with alternate convervative investments classes, investors still view these returns as offering an attractive premium relative to other asset classes and often provide favorable tax advantages. 

Both Core and Core Plus investments provide a relatively conservative approach to real estate investment. 

Value-Added investments offer a moderate level of risk. The goal of value-added investments is to acquire properties that need improvement or repositioning. Properties classified as Value-Added usually require amenity and aesthetic upgrades, or require operational improvements.

Value-Added investments usually have a short-term holding period of three to five years and focus on appreciation in additon to income. Investments in the Value Added category offer opportunities for a balanced mix of current cash flow and future appreciation. These properties may be located in recovering primary markets as well as in secondary or tertiary markets, and may offer some retenanting exposure, though often coupled with the opportunity to increase cash flow when existing rents are below current market levels. Moderate leverage can enhance yield while still allowing for healthy debt service coverage.

Value Added investments appeal to knowledgeable investors seeking a higher return in exchange for a somewhat higher level of operating risk.

Opportunistic real estate investment programs assume the greatest risk of all three asset classes, but have the objective of generating higher returns. Investments in the Opportunistic category tend to be growth and development oriented, with high potential overall returns. These investments generally require the investment manager to convert, redevelop, or reposition an existing property in order to seek its highest and best use. Acquisitions may be concentrated in limited geographic areas.

Opportunistic investments generally have a short-term holding period of two to five years, and are geared to maximize appreciation. To add value to the property, asset managers may re-tenant, reposition, recapitalize, develop, or redevelop it. Investment in this category can involve the commitment of significant capital based on an assessment of broad market trends and normally includes limited cash flow during the early phase of the hold period.

Opportunistic investors tend to be sophisticated and well capitalized investors who have a high risk tolerance and are comfortable with the higher levels of leverage that are typical in this segment.