CRE Basics: Real Estate Asset Types

This learning series on Modern Commercial Real Estate Investing first appeared on the EquityMultiple blog. Please check in there for updates and additions to this series.

Commercial real estate investing can produce significant returns for investors while providing the security of a physical asset; however, it’s important to distinguish between the types of real commercial real estate as they carry different benefits and strategic considerations. Depending on your investing goals, the sub-types of real estate you are investing in — or real estate asset classes — can present their own unique set of risk / reward profiles. If you believe that a certain, once ignored neighborhood is up and coming amongst millennials you may want to invest in properties that provide rental housing to accommodate that demand.

If you believe that a burgeoning community has a pent up demand for retail then you may want to invest in a retail property, and so on, depending on larger socio and macroeconomic trends.

The commercial real estate market is primarily divided into six different real estate asset classes: multifamily, office, industrial, retail, hospitality and development. Macroeconomic factors and shocks impact each category of underlying asset in a different way; each has benefits and drawbacks, and should be considered in the context of an investor’s existing portfolio and long-term strategy.

Multifamily

Office

Industrial

Retail

Hospitality

Development

Real Estate Project Types

Within these asset categories, not every project is created equal. Risk and return profiles can vary greatly within an asset category based on the geographic market where it is located, the stage of development or management of the asset, and the structure of the project’s financing and investor payout.

Core

Core Plus

Value Add

Ground-up

The EQUITYMULTIPLE Strategy

We select projects that carry the best risk-adjusted return for investors. In many cases this will entail substantial cash flow early in the term. In almost all cases, the projects we select will be in primary or, occasionally, secondary markets. These projects will span asset categories and deal types, though equity investments in ground-up development is unlikely to be featured. Above all, we believe that trusting the sponsor company and their project plan is key to mitigating risk.

Diversifying Your Real Estate Portfolio

Real estate has always been a difficult asset class to invest in due to its capitally intensive nature: oftentimes, you need significant capital outlays to be part of a real estate project. Whether or not CRE is part of your portfolio (and we would argue it should be), EQUITYMULTIPLE provides exposure to a range of real estate asset classes and strategies to facilitate creating a real estate portfolio that aligns with your overall investing objectives.

Whereas publicly traded REITs are subject to the same volatility as stock market assets and are fee-heavy, and owning large share or the entirety of one property can expose a large portion of your capital to the fate one project, EQUITYMULTIPLE allows you to diversify your risk across a number of different projects.