Core Plus: The Cutting-Edge Solution for Investors

Core Plus: Redefining the Investment Landscape

The investment landscape has undergone a significant transformation in recent years, driven by the growing demand for diversification and yield enhancement. Core plus emerged as an innovative solution, offering a compelling alternative to traditional core and core-plus strategies.

What is Core Plus?

Core plus is a hybrid investment strategy that combines elements of both core and core-plus assets. Core assets are characterized by long-term leases, high occupancy, and stable cash flow, while core-plus assets offer the potential for additional return through value-add opportunities, such as property renovations or rent increases.

Benefits of Core Plus

• Diversification: Core plus provides diversification benefits by investing in both core and core-plus assets, reducing the overall risk of the portfolio.
• Stable Income: Core assets provide stable income through long-term lease agreements, while core-plus assets offer the potential for additional income through value-add enhancements.
• Return Enhancement: The combination of core and core-plus assets has the potential to enhance returns compared to traditional core assets.
• Flexibility: Core plus allows investors to customize their portfolio based on their risk tolerance and return expectations.

Key Features of Core Plus

• Target Occupancy: Core plus assets typically have occupancy rates of 90% or higher.
• Lease Length: Core assets have long-term leases (10-20 years or more), while core-plus assets may have shorter lease terms (5-10 years).
• Net Operating Income: Core assets generate stable net operating income (NOI), while core-plus assets have the potential for NOI growth through value-add enhancements.
• Debt-to-Income Ratio: Core plus assets typically have debt-to-income ratios below 75%.

Applications of Core Plus

Core plus has a wide range of applications across various asset classes, including office, industrial, retail, and multifamily properties. Some innovative applications include:

• Value-Add Multifamily: Acquiring older multifamily properties with the potential for renovations, rent increases, and amenity upgrades.
• Industrial Repositioning: Converting industrial properties into more modern and flexible facilities to meet the demands of e-commerce and distribution.
• Office Densification: Increasing the density of office space through creative layouts and amenities to attract tenants in high-demand markets.
• Retail Reimagining: Redeveloping shopping centers with a mix of retail, entertainment, and residential components to create vibrant destinations.

Market Outlook

The core plus market is expected to continue to grow in the coming years, driven by strong demand from investors seeking yield enhancement and diversification. According to CBRE, the core plus segment is expected to account for over 30% of commercial real estate investment activity in the next decade.

How to Invest in Core Plus

Investors can access core plus investments through a variety of vehicles, including:

• Private Equity Funds: Funds that invest in core plus properties on behalf of their investors.
• Institutional Funds: Funds managed by pension funds, endowments, and other institutional investors with expertise in core plus strategies.
• Separate Accounts: Customized investment accounts managed by investment managers for individual investors or family offices.

Conclusion

Core plus has emerged as a compelling investment strategy that offers a unique blend of diversification, stable income, and return enhancement. By combining the stability of core assets with the value-add opportunities of core-plus assets, investors can achieve their investment goals while mitigating risk. As the market for core plus continues to grow, it is expected to play an increasingly important role in the portfolios of investors seeking both yield and diversification.