Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing What is Core Real Estate.

TALKING POINTS
➡ When most investors discuss multifamily investing; the most popular strategy is value-add multifamily; however, there are different multifamily investment strategies; including core multifamily.
➡ A core real estate investment should be in a primary market, newer, stabilized properties, have a low loan-to-value and lower expected returns when compared to core plus or value-add investments. Many syndicators will deem investments to be core investments but there are 5 parts that are required for an asset to be considered a core investment.
➡ 1st is the location of the property; these assets must be located in core cities AND core submarkets. Growing cities with populations of 200k+ people ensure that there is liquidity (institutional end buyers) when selling. The submarket selection is as important as the city selection. Within these cities, core assets will be in solid B/B+ and A areas. There is consistent demand from credit tenants to live in this submarket.
➡ 2nd is the age of the property; institutional core buyers are looking for assets that are going to be easier to maintain; they are looking for a consistent income stream with minimal maintenance issues. As properties age, their reliability of income may become an issue. Core buyers also do not want to perform renovations or major investments of capital for maintenance. They are focusing on newer assets or maybe a brand-new development that was just completed and leased up.
➡ 3rd is cashflow; core buyers are targeting assets with reliable income streams; similar to a mature, blue-chip dividend stock. Core buyers will increase rents over time along with the market and inflation but core buyers do not want to worry about being paid rent on time. Core assets have solid tenant bases that provide a reliable income stream to the owner.
➡ 4th is the leverage, or the loan-to-value. So far you will notice that core assets are newer, high quality, low risk assets with predictable income streams, in liquid markets where there are consistent buyers. This now has to be paired with low debt levels. An asset cannot be a core asset if the property is having a high loan to value. An asset that with a high loan to value will be disqualified as a core asset. Debt levels for core assets are typically 40%-50% with there being 50%-60% of equity in the property. This makes the core asset a very low risk investment. In any income disruption event; there is a very low likelihood that the core buyer will lose the asset.
➡ 5th are the expected returns; typical returns for core assets are usually in the mid-single digits; if any manager is expecting double digit returns or even returns 9%+; you really need to perform your due diligence into the deal and into the manger. The market could be smaller, the loan-to-value could be higher, the asset could be older. This will all add to the risk level of the investment.
➡ Core assets are low risk investments. They are similar to mature, dividend stocks, not growth stocks. If you are looking for a double-digit return; core asset investing is not what you are looking for. You are not doubling your money in 5 years with a core asset. Core assets are for investors looking for diversification in real estate who want to invest in a company with the strength of say Coca-Cola or McDonalds.

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