Private Commercial Real Estate Strategies, Risk Levels, and Returns

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The relationship between risk and return is a fundamental principle that reflects the trade-off investors face when making investment decisions. Generally, higher targeted returns are associated with higher levels of risk. Investors demand compensation for taking on additional risk, expecting greater returns in exchange for the possibility of greater losses.

Private real estate equity investing is dynamic and multifaceted, with various risk and return profiles depending on the location, property type, business plan, and market conditions of specific real estate investments. Understanding these risk and return attributes is critical for investors to make informed decisions and develop appropriate investment strategies[2]. [3]

Core Investments

Risk Profile[4]: Low

Net Return Profile: 6% - 9%

Core real estate investments are typically associated with stability, reliable cash flow, and lower risk compared to other investment profiles. Assets are typically high-quality, well-occupied, income-generating assets in prime locations and supply-constrained markets with low leverage.

The business plan for core investments focuses on the optimization of operational efficiency. This risk profile aims to maintain consistent cash flow through high occupancy, enhance property value through minor, strategic improvements, and minimize risks. Core investments are typically held for a longer time horizon, typically 10+ years.

Examples of core investments could include well-occupied new construction multifamily assets in primary markets, or new construction industrial assets leased to credit tenants (or tenants that have investment-grade ratings by recognized rating agencies) for 10+ years.

Core-Plus Investments

Risk Profile: Low - Medium

Net Return Profile: 8% - 11%

Investors pursuing a core-plus strategy seek assets that offer in-place cash flow, with some minor upside potential through capital appreciation. Assets are typically high-quality, well-occupied, and in a highly liquid market, but may have some upside potential through minor lease-up, capital expenditures, and/or operational improvements. Such projects can include minor improvements to (1) the tenant base through lease-up or releasing, (2) the physical asset through capital expenditures, or (3) management strategies through revenue management enhancement (increasing occupancy or revenue) or expense reductions. Target hold periods for core-plus investments are between 5 to 10 years.

Examples of core-plus investments could include multifamily assets built in the last decade requiring light capital expenditures, or newer vintage industrial assets with strong in-place occupancy, which would require renewing or re-leasing part of the tenant base over the hold period.

Value-Add Investments

Risk Profile: Medium

Net Return Profile: 11% - 13%

Value-add investments typically focus on upside potential through price appreciation, with a focus on absolute returns (IRR) over cash yield during the hold period. These investments may be acquired with a more extensive business plan in mind to achieve elevated absolute returns compared to Core or Core Plus investments.

The business plan for value-add investments usually involves heavier renovation, lease-up, revenue optimization, or redevelopment to enhance the property's value. An investor may acquire an asset that is not well occupied, mismanaged by the existing owner, or is in need of significant capital expenditures. As such, in-place cash flow may be more limited, but the opportunity exists to increase cash flow substantially and sell the asset.

Examples of value-add investments could include acquisitions of older multifamily assets in need of significant capital expenditures (renovation), or the acquisition of an industrial asset with near-term tenant expirations and the ability to increase tenant rents upon rollover. While all investments carry some risk, if the business plan of a value-add investment is not successfully implemented, the project could be at risk of yielding low or even negative returns. Value-add investments are typically held for 3 to 5 years.

Opportunistic Investments:

Risk Profile: High

Return Profile: 14%+

Opportunistic investments carry a higher level of risk and, in turn, offer the greatest potential for returns, driven primarily by capital appreciation with limited or no in-place cash flow. These investments involve ground-up development or more substantial repositioning efforts often associated with underperforming or distressed assets.

The goal is to create substantial value through active management and capital improvements, generating high returns upon exit. Opportunistic investments are typically held for a shorter time horizon, around three to five years, with the strategy of selling upon completion of the business plan.

Examples of opportunistic investments include, but are not limited to:

  • Ground up development: Building residential communities, commercial complexes, or mixed-use developments from the ground up. The risks in this strategy include the complexities of construction and the unpredictability of lease-up.
  • Repositioning or adaptive reuse: Repurposing existing structures for a new use or significant lease-up. For instance, a heavy renovation and re-branding of a hotel could be considered an opportunistic investment.
  • Distressed assets: Acquiring properties facing financial distress, foreclosure, or bankruptcy, and implementing strategies to turn around the distressed asset, such as renovations or rebranding. For instance, purchasing a foreclosed office asset, renovating it, and repositioning it in the market is considered a distressed investment.


Private real estate investors must align their risk tolerance, financial goals, and investment strategy with the appropriate risk profile. Whether seeking stable income, aggressive returns, or a combination of the two, an understanding of the nuances of each risk profile is essential in making informed decisions in the complex world of real estate investment.

1. The views expressed above are presented only for educational and informational purposes and are subject to change in the future. No specific securities or services are being promoted or offered herein. This communication is not to be construed as investment, tax, or legal advice in relation to the relevant subject matter; investors must seek their own legal or other professional advice.

2. The depiction of the risk-return spectrum in this article reflects the perspective of Cadre. It's essential to recognize that varying interpretations of the risk-return dynamics in real estate may exist, and readers should be aware that other industry participants might conceptualize this spectrum differently.

3. Underwritten hold period represents the typical underwritten hold period, which can vary between different investments

4. The terms "low risk" and "low return" are relative to the real estate risk/return spectrum discussed in this article. It acknowledges that, within this framework, investments deemed low risk may also yield comparatively lower returns.


Educational Communication
Not AdviceThe views expressed above are presented only for educational and informational purposes and are subject to change in the future. No specific securities or services are being promoted or offered herein.

Not Advice
This communication is not to be construed as investment, tax, or legal advice in relation to the relevant subject matter; investors must seek their own legal or other professional advice.

Performance Not Guaranteed
Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are not guaranteed and may not reflect actual future performance.

Risk of Loss
All securities involve a high degree of risk and may result in partial or total loss of your investment.

Liquidity Not Guaranteed
Investments offered by Cadre are illiquid and there is never any guarantee that you will be able to exit your investments on the Secondary Market or at what price an exit (if any) will be achieved.

Not a Public Exchange
The Cadre Secondary Market is NOT a stock exchange or public securities exchange, there is no guarantee of liquidity and no guarantee that the Cadre Secondary Market will continue to operate or remain available to investors.

Opportunity Zones Disclosure
Any discussion regarding “Opportunity Zones” ⁠— including the viability of recycling proceeds from a sale or buyout ⁠— is based on advice received regarding the interpretation of provisions of the Tax Cut and Jobs Act of 2017 (the “Jobs Act”) and relevant guidances, including, among other things, two sets of proposed regulations and the final regulations issued by the IRS and Treasury Department in December of 2019. A number of unanswered questions still exist and various uncertainties remain as to the interpretation of the Jobs Act and the rules related to Opportunity Zones investments. We cannot predict what impact, if any, additional guidance, including future legislation, administrative rulings, or court decisions will have and there is risk that any investment marketed as an Opportunity Zone investment will not qualify for, and investors will not realize the benefits they expect from, an Opportunity Zone investment. We also cannot guarantee any specific benefit or outcome of any investment made in reliance upon the above.

Cadre makes no representations, express or implied, regarding the accuracy or completeness of this information, and the reader accepts all risks in relying on the above information for any purpose whatsoever. Any actual transactions described herein are for illustrative purposes only and, unless otherwise stated in the presentation, are presented as of underwriting and may not be indicative of actual performance. Transactions presented may have been selected based on a number of factors such as asset type, geography, or transaction date, among others. Certain information presented or relied upon in this presentation may have been obtained from third-party sources believed to be reliable, however, we do not guarantee the accuracy, completeness or fairness of the information presented.

No U.S. or foreign securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through us.

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