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CAIA Level II: Advanced Core Topics in Alternative Investments, 2nd Edition by CAIA Association

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CHAPTER 17

Core, Value-Added, and Opportunistic Real Estate

Chapter 15 provided numerous examples of distinctions that portfolio allocators can make when categorizing real estate. As detailed in that chapter, the primary subgroup on which real estate equity analysis is focused is commercial (income-producing) real estate. This chapter focuses on the analysis of commercial real estate by institutional investors.

Institutional access to private commercial real estate investment is typically through limited partnerships involving one or several properties. An institution purchases all of the limited partnership interests or a portion thereof (along with other institutions) to have exposure to the underlying assets as well as to enjoy the managerial services of the general partner.

Styles are a primary method by which asset allocators can provide organization and structure to their universe of available investments. For example, in public equities, the styles of growth and value are often used to classify equities. By categorizing investments, an asset allocator attempts to construct better portfolios, use more appropriate benchmarks, and perform better return attribution.

The premier approach to organizing investment within the category of private commercial real estate equity is through styles of real estate investing, which refers to the categorization of real estate managers or real estate investments based on risk and return expectations. In 2003, the National Council of Real ...

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