Value-Add Investments

Value-add investments involve an even higher risk than core plus, but are considered to have a medium to high return if executed properly. Buyers who acquire these properties are generally more experienced in commercial real estate investments and understand the amount of risk involved. An example of a value-add property is a dated apartment complex with deferred maintenance and requires a complete renovation. These types of investments will not see any return on investment for a long period of time due to the amount of capital that will have to go into fixing them up and the amount of time required to execute the strategy. Leasing is often a critical part of the overall strategy to start generating income, as value-add properties typically have a higher vacancy rate upon acquisition. The price is dropped on value-add properties due to the risk associated with the cost of renovating and leasing the property back to stabilization. The overall goal is to create a profitable investment by modernizing the building and bringing it up to market standards and ADA code. Once a value-add property has been updated, filled its vacancy, and is generating a steady NOI, it might be resold as a core investment property. 

Opportunistic

Opportunistic properties are defined as having the highest risk and reward. These types of properties require a significant amount of redevelopment and usually come with the highest vacancy level compared to other investment properties. Investors who choose opportunistic properties are focused on the bigger picture and understand they won’t see a return on investment in the immediate future. Construction is often required with opportunistic properties, including major renovations involving tearing down all or parts of a structure, gutting a building, or even ground up development. It’s not uncommon for investors to tear down the structure completely and start constructing a new property type. These properties take time to come together because they are in the poorest condition, generating the least cash flow upon acquisition. Investors know they will have to wait the longest to see a positive return. Overall, opportunistic properties are best left to experienced investors who know they will need to put a significant amount of effort into these projects to be able to see a return in the far future. 

Being educated on the main types of property investments will increase your chances of seeing a positive return on your investment. We have years of experience in acquiring, redeveloping, and selling commercial properties using various strategies. Many of our clients for the net lease properties we develop often utilize the 1031 exchange deferred tax strategy.