Core real estates generally employ no to low leverage (0-40%), consist of low-risk/low-return assets, earning premium return above that on the NCREIF Index with a meaningful current income component. These assets are often located in gateway, primary cities (e.g. NYC, L.A., Washington DC, London, Hong Kong, etc), are newly-built, fully stabilized, either fully occupied or close-to-fully occupied. Examples are CBD office towers, retail spaces or luxury apartments in international hubs. Commercial tenants often sign leases that are backed up with rent guarantee from blue-chip, credit worthy corporate parents.
Compared to the stock market, core investments hold up extremely well in business and real estate cycle downturns, and thus serve as the bedrock of a conservative portfolio and one most favored by large institutional players such as pension funds, insurance companies and money managers. Core is also the most “all weather” of the four strategies. Towards the tail end of a real estate cycle, which is where we are at according to all the pundits, Core returns are the lowest. In searching of a core investment as a retail investor, I am deterred by the gargantuan minimum entry requirement of some of these core funds, high management fees (most I’ve seen are > 2% annually – ouch!) and less-than-impressive return (which arguably commensurate with the risk).
2. Core Plus:
Core Plus is not quite as high quality as Core (contrary to the word “plus” which suggests otherwise). Underlying properties might be located in primary and secondary markets. Core Plus is a low-to-medium-risk and return slightly more than Core. Core Plus generally constitutes investment in core quality properties that will require a mild form of operational improvement or aesthetic upgrade.