WHAT ARE CORE INVESTMENTS?
In real estate industry, the term core relates to income. Core real estate is the bedrock of a diversified portfolio. Investors acquire core assets for its stable income, or cash flow. This type of asset includes real estate that’s located in the strong and demanding urban center of major metropolitan areas (New York, Los Angeles, Washington DC etc.), and rented out to institutions and national credit tenants (successful companies with a national footprint and strong financials).
Due to the high tenant demand, core investments are almost as safe as bonds, but with much higher returns. They are generally considered the solid foundation of any real estate portfolio with a low level of risk. Often the tenants (like a Starbucks franchise) have long-term leases and are backed up with a rent guarantee from the parent company (Starbucks Inc.), which protects the investor if the tenant leaves or breaches the terms of the lease.
Some examples of core properties include office spaces, retail centers, hotels, These types of properties are generally acquired with little to no debt.
Historic rates of return: 7 to 11%
Leverage: around 25%
WHAT ARE THE CHALLENGES?
Core properties are generally located within the major markets of most metropolitan cities, which generally demand higher prices for acquisition. Thus, the barrier to entry for a core investment property is higher than other investment types. lHowever, these properties generally run on their own as many core investments are based upon triple net leases in which the tenant pays for the rent as well as the general upkeep and management of the property. Overall, the core asset class provides a landlord with consistent, stable cash flow.