Those who have been keen about investing their accumulated worth in the real estate sector, have identified how this sector has turned out to be an institutionalized asset class. Considering the facts even a couple of decades back, the commercial real estate sector constituted only 2 percent of the entire investment portfolio. And regionally, most of the plots were owned by the local shops which were affluent in the area. But over the years, things have changed, and Bharti Jogia Sattar notices how commercial real estate has recovered over the years and turned out to be a nearly 10 percent of the international investment portfolios.
Even though billions of dollars have come in the market, the real estate scenario remains the same. There are four distinct categories in which real estate investments take place – core, core-plus, value added and opportunistic.
Bharti Jogia Sattar Describes the Investment Strategies Belonging to Individual Categories
Core investing has always been considered to be the safest. Depending on whether the asset is stable and prospectively high priced, the investor makes their choice and hence goes ahead. The investors who believe in safe investments has always looked for yield over appreciation, and for them real estate is one of the safest areas to invest in. The average rate of return in real estate segment gets below 10 percent. As the price of CRE assets are increasing very recently, this is expected to be a growing concern for core investment people, but investors keep pursuing the similar strategy forever.
The core-plus investment will be similar to core investment policies, but there’s something more to it as well. The investors over here also look for strategies that will allow them to last long in the industry for a sustainable period, but along with that, they also seek for an opportunity which will add value to enhance the returns. These investments are achieving higher degree of risk, and it doesn’t avoid the sight of the private equity real estate investors at all.
The risk return chain is higher in the value added strategies that the investors take. In this section, the investors are keen towards holding a particular asset for a period of 5-7 years, and depending on the value of return, the next step is taken. The entire strategy is all about adding some value to the asset before disposition. Leasing is one of the safest and critical parts of the value added strategy. Effective brokerage terms are going to affect the market and attract strong tenants to the market more.
But Bharti Jogia Sattar is keen about the high risk reward investment strategy which is otherwise considered to be an opportunistic approach of the investors. And quite interestingly, even though there’s substantial risk factor in such an investment procedure, 45 percent of private equity real estate investors show interest in such a strategy. The entire goal is in finding 15 percent of IRR, and once achieved, the deal is done with.
It might be one big world, but there are several ways to cut it down and make the most of it. Smart strategies never fail- it depends how smart you can get with time.