Why is Core+ getting more attention?
College student here trying to learn more about the industry.
I'm curious why it seems (to me, correct me if I'm misunderstanding) that there is more attention to Core+ funds/firms in recent years. For example BX's new Core+ fund (BPP) from a couple years back. Can anyone explain? Is this related to investors seeking inflation shields, and if so how? Is this because of COVID overall uncertainty?
I also see those core, non-listed REIT platforms at KKR, BX, Starwood, etc. Why are they getting popular and how exactly do they work and differ from conventional REITs? Can anybody explain please?
Appreciate the help. Thank you.
Nobody wants Class C office buildings in the middle of Nebraska bro....
I think you would be amazed at what institutional investors want these days lol. Carlyle and Blackstone are grabbing up trailer parks like nobody's business, Blackrock is balls deep in single-family homes, etc.
This is true. Carlyle and Blackstone collectively own probably $4B of manufactured housing.
Well, trailer parks and single family homes have some enticing aspects to them which Class C office parks in Nebraska don't. You know... that's the reason Blackrock is investing in them in the first place.
It’s because yields are so low, too low for a lot of investors return requirements.
Not sure what you mean by "more attention", more compared to valueadd/opportunistic on an aggregate dollar-invested basis? Are you trying to understand why investors don't want the highest return risk spectrum?
Investors want a good risk-adjusted return. Core plus vehicles/deals offer usually offer that, especially those focused on an asset class with histrorically good returns (ie industrial/multifamily). Sometimes, you do a development/value-add deal that hit mid-high teens IRR but the returns is driven mostly through appreciation (remember, there's 2 things that make up returns - income & appreciation). Lots of times, institutional investors, like state pensions, have certain distribution requirements/hurdles they need to meet, and so the majority of their allocation needs to be producing income. Core plus vehicles offer just that - better appreciation than the core stuff, and steady-eddy income stream.
The reason no one has talked about yet: Fees. At one point, blackstone was raising $1 billion per month for their non traded REIT. And that’s all from retail investors who they can charge much higher fees to compare to institutional LPs.
Everyone has a non traded REIT now. It is a fee machine. They always have been fee machines, but they temporarily went away because one of the leaders in the space committed major fraud so it fell off the map.
Thanks for the reply! Would love to hear more from you -
If we’re talking about regular commingled funds (not non traded REITs), I thought PE shops make more fee money on the riskier, opportunistic funds? Is that so and if so why?
As for the non traded REIT, why can you charge retail investors higher fees? Is it because they’re less sophisticated/smaller/have less negotiating power? Also, who committed the fraud?
You’re correct on the fees front.
If the two funds were equal sizes, the opportunity fund would make more money. But it’s hard to deploy billions of dollars and still hit an 18% IRR.
So you can raise billions and billions of core capital, deploy it easier (relatively speaking), and the fund is open-ended so no need to go through a fundraising process every few years. It’s just a machine that keeps raising money and pumping out fees
Because core used to return >4.00% so there wasn't a need to really distinguish another layer between core and value-add. Now I hear "core" and think sub 4.0% cap-rate.
Funny, BX and Carlyle are buying manufactured housing out of Core-Plus funds at sub 3% cap rates...
Brokers ran out of true value-add deals, so now Core + is the new value-add. I've seen BoV's for Core + multis where it's suggested that adding additional shelving in 2014 vintage walk-in closets can generate $75 premiums. LOL.
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