Origin Principal David Scherer explains the five pillars of a core plus real estate investment and who should consider investing in them. Core plus assets are very close to being hands-off and stabilized, however, these investments contain minor risk factors which need attention.
1) Location
Core plus assets should be located in cities (and submarkets) where liquidity is never an issue. The most lucrative real estate markets, which you can read about here, all provide ample liquidity to allow quick entrances and exits from assets. A core plus asset might be slightly removed from the areas with the highest liquidity, but it needs to be liquid.
2) Vintage
Core plus assets can be slightly older than core assets, and include minimal renovations to those older properties. They might be up to 20 years old, and as long as the improvements required are minor, the asset can maintain its “core plus” label.
3) Cash Flow
A core plus asset might not achieve its maximum cash flow until some minor improvements are made. Once that has been done, core plus assets should behave similarly to a dividend stock such as Coca Cola; investors can expect a reliable income stream with moderate growth.
4) Debt to Equity
A core plus asset can be anywhere from 45-60% leveraged.
5) Expected Returns
Returns vary, but generally speaking, an 8-10% return can be expected with a core plus investment.
Who Should Invest in Core Plus Real Estate?
Anyone looking for a reliable income stream should consider core plus investments, either directly or through a fund. While core plus may not have quite the same level of safety as a core investment, you can feel secure in knowing you’re investing in an asset that is extremely close to becoming a reliable income stream with a few minor improvements.
