Asset Class
Real Estate Core
Core Real Estate targets stabilized properties with durable cash flows and lower leverage, emphasizing income and capital preservation over aggressive value creation. Allocators evaluate core through tenant quality, lease durability, cap-rate sensitivity, and liquidity under stress.
Core strategies invest in stabilized assets with high occupancy, strong tenants, and predictable cash flows. For allocators, core real estate is often treated as a real-income sleeve—but it still carries meaningful cap-rate and liquidity risk.
How allocators define Core exposure
They segment by:
- Property type: industrial, multifamily, office, retail, niche sectors
- Tenant quality: credit strength, diversification, lease terms
- Lease structure: triple-net vs gross; inflation escalators
- Leverage: conservative vs return-enhancing
- Market risk: supply, demographic trends, local economy
- Liquidity: exit depth and price discovery during dislocations
Allocator framing:
“How durable is income, and how sensitive is valuation to cap rates?”
Core strategies within Core
- Stabilized income: long leases, low turnover
- Core-plus tilt: modest business plan without heavy execution risk
- Inflation-linked core: escalators and pricing power emphasis
Portfolio role
Used to:
- Provide income and inflation sensitivity
- Add diversification versus financial assets
- Improve stability versus higher-risk real estate strategies
Manager evaluation
Conviction increases when:
- Underwriting is conservative on cap rates and exit pricing
- Tenant/lease risk is diversified and transparent
- Leverage is modest and maturities are well-managed
- Asset management is proactive (renewals, tenant health monitoring)
- Reporting is detailed and consistent
What slows decisions
- Core portfolios that are “core” in name only (hidden capex risk)
- High office exposure without demand durability proof
- Valuation smoothing and limited transparency
- Leverage that turns core into refi-sensitive exposure
Common misconceptions
- “Core won’t lose money” → cap rates can move sharply; liquidity can disappear.
- “Income is stable” → tenant credit and lease rollover risk still exist.
- “Core equals liquid” → real estate liquidity is cyclical.
Key allocator questions
- What is the cap-rate sensitivity and downside valuation case?
- How diversified are tenants and lease expiries?
- What is the rollover schedule and renewal probability?
- How does debt behave under higher rates and tighter credit?
- How did similar assets trade in prior stress periods?
Key Takeaways
- Core is about durable income + conservative leverage, not “no risk”
- Cap-rate sensitivity is the primary valuation driver
- Transparency on tenants and rollover determines institutional comfort