What is core private real estate?
Summary
Core private real estate refers to a category of real estate investments that are typically considered to be the highest quality and least risky within the real estate risk spectrum. Core real estate assets are typically located in large or growing markets and have high occupancy levels with long-term leases held by creditworthy tenants. Additionally, core assets are typically financed using a prudent amount of debt in the capital structure. The asset class generates the majority of returns from income, and to a lesser extent, capital appreciation.
As we explore the five defining features of core properties, we’ll reveal how prudent financing, reliable income streams, and a commitment to long-term holding converge to shape the asset class.
Characteristics of core properties
Prime locations and amenities
Core properties are strategically located within top MSAs and markets that are growing. These can be characterized by strong economic stability, job growth, population growth (typically highly correlated with job growth), well-developed infrastructure, technology or innovation hubs, well-educated workforce, and/or investor-friendly regulations.
The amenities associated with core real estate typically include high quality finishes, local access to public transportation, advanced technological infrastructure (such as high-speed internet and advanced HVAC systems), fitness centers, modernized meeting spaces, and concierge services.
The emphasis on prime locations coupled with highly-amenitized features helps core real estate remain attractive and desirable, contributing to the stability and potential appreciation of the investment.
Stability
Core private real estate investments prioritize stability through long-term lease agreements with creditworthy tenants. The income generated from these leases provides a reliable and steady cash flow, making core properties resilient to short-term market fluctuations and providing a hedge against inflation. This stability is particularly attractive to investors who seek consistent returns without exposing themselves to excessive risk.
Learn more about private core real estate from USQ's experts
Potentially lower risk
Core real estate investments are considered to be a conservative investment approach due to their low leverage and focus on high-quality stabilized properties. These properties are meticulously chosen for their strong fundamentals, such as high-quality tenants, proven income-generating potential, and historical resilience. The lower-risk nature is also a result of conservative financial management, which involves maintaining reasonable levels of leverage and avoiding aggressive financing strategies.
Prudent financing
Core private real estate typically utilizes modest leverage - generally less than 35% LTV. Additionally, depending upon the environment, the debt that is held is fixed rate (or hedged) to mitigate the volatility of interest rate swings. This leverage profile allows core investors to weather most economic environments.
Long-term holding
The core private real estate strategy involves a patient, long-term approach to investment. Investors in core properties are willing to commit to extended holding periods, typically a minimum of at least 7-10 years, recognizing that the value and income potential of these assets often increase over time. This approach aligns with the idea of enduring market cycles and attempts to capture the benefits of consistent, long-term income while also providing a hedge against inflation.
Conclusion
Core real estate investments are a cornerstone of a diversified investment portfolios. Click here to learn more about how diversifying with core private real estate can benefit a portfolio.
Related reading
Read our whitepaper, Core commercial real estate: An examination of public vs. private.
Learn how diversifying with private core real estate can benefit your portfolio.
Make core real estate work for you
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Risk Disclosures
Union Square Capital Partners, LLC is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Past performance does not guarantee future results.
There are a number of significant risks that should be considered when considering an investment in real estate or real estate related securities. No amount of diversification or correlation can guarantee profit or prevent losses. This website is neither an offer to sell nor a solicitation of an offer to buy any securities. An offering is made only by the applicable offering documents or Prospectus and only in those jurisdictions where permitted by law. This website must be read in conjunction with the applicable offering documents or Prospectus in order to understand fully all of the implications and risks of the offering of securities to which it relates and a copy of the offering documents or Prospectus must be available to you in connection with any offering. All information contained in this website is qualified by the terms of applicable offering documents or Prospectus. Neither the United States Securities and Exchange Commission nor any state regulator has approved or disapproved of the merits of any offering described herein. Any representation to the contrary is unlawful.
