Question about Core Real Estate Funds

I was recently looking at a Core Fund and and was looking at the statistics and it gave a % break down of what percentage of the fund was Core. Are core funds allowed to invest a small percentage into other types of strategies? Or these assets that have gone bad and are no longer considered core assets?

 

Depends on the fund and it’s Prospectus. You can’t give a definitive yes or no because it’s dependent upon the mandate. With that said, I am familiar with two core funds that also invest in select value add and development projects. Of these two funds I’m thinking of, one of them can only invest a certain percent at a time in value add and development deals. For the other one, I am not familiar with the rules. 

 

It depends on the fund and their mandate. If the fund you were looking at is an ODCE fund, then that will be governed by the index ( think its  less than 25%).

These are typically intentional non-core investments (i.e. build-to-core developments, redevelopment, etc.) and not core deals that went sideways.  

*Edited because text got cut off. 

 

A few points on this...

1. "Core" can be in a fund name, but its target allocation is purposely "core-weighted", so it could just be the strategy of the fund

2. There are no official rules, each fund sets its terms in its organizational docs, they all have leeway to some (if not great) extent... still investors generally want/need funds to hold to their strategy as it impacts their portfolio management rules, return expectations, etc. 

3. In practical fund management, you may need to drift on an asset, especially if you do portfolio acquisitions (which everyone in a core fund wants to do). Meaning you need to buy some non-core assets as part of a core portfolio buy. 

That is far from an exhaustive list, but the point is that naming or designating a fund "core" or "opportunistic" isn't usually binding in anyway other than how that fund manager chooses to exercise it bounded by the terms of the fund docs and the will/input of the manager. 

"Style drift" is what this is called, when you deviate from target, whether this gets you in trouble with your investors is really the question, if you do it too much, it could impact ability to get or retain investors (this is often a function on how successful/risky such drifts are).  

 
Most Helpful

Correct. The ODCE index has food group, location, and leverage restrictions. For example, (and this might not be the exact restriction), but it would be 25% East, 25% west, 25 mountain, 25% Midwest. Funds will try to stay in that range with allocation of funds to keep with the index. Additionally, top leverage might be, for example, 50%. So funds will try to stay at or below that. Looking at all this, and keeping with it, funds will compare their returns to the index to compare how they are performing against in. Additionally, you have some leeway, for instance, if the fund wants to underweight retail, they can. But they may only do it to an extent because if you don’t own any retail, the consultants who assist the pensions in choosing investment managers may raise that as a red flag because you have less diversity and therefore, are more risky. And the funds may get allocated elsewhere. It’s a very interesting song and dance. 

Going a little further, by looking at the index, you get implied cap rate data. So you might know, or be able to imply, that your competitors are paying an approximate 4.5% cap rate for core office assets. So you might not love a deal, but if it’s a true 5% cap, you might purchase it because from the start, you are outperforming your peer set. If you believe the asset will continue to perform steadily, even if there is something you don’t love about the deal (maybe tenant base/mix/LXD schedule) you might buy it because you believe the pros of the deal (high initial cap rate, consistent returns believed to occur) will our way the negatives (LXD schedule, credit tenancy, etc.). 

 

Blanditiis laboriosam ut optio consequatur. Et impedit earum incidunt aliquid et. Quasi libero quo velit iusto porro vero.

Dolores impedit dolor veniam. In eligendi ea qui. Atque occaecati nulla cum dicta laborum assumenda.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
kanon's picture
kanon
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
DrApeman's picture
DrApeman
98.9
9
GameTheory's picture
GameTheory
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”