Private investment funds focused on real estate have turned toward stable income over purchases holding more risk as the dollar volume of quarterly commercial property deals falls, according to CoStar data.
The funds tracked by CoStar include some of the largest global real estate investors, which can sway markets with their buying and selling. Funds set up by firms such as Blackstone Group, Starwood Capital Group, KKR, CBRE, Brookfield Asset Management, Clarion Partners, TA Realty, Invesco and Singapore-based Mapletree account for billions invested in U.S. properties.
Funds employing what’s known as core, core plus, opportunistic and value-add strategies reduced their purchase activity by 27.1% last year from 2021. A core strategy has low risk and low return, while core plus involves moderate risk and moderate return. Properties bought using core or core plus are seen as stable with a steady income, while the value-add strategy includes moderate-to-high-risk investments with moderate-to-high returns with properties that tend to need upgrades. The opportunistic approach offers high risk and a potentially high return with property typically requiring a complete overhaul.
While the dollar volume of deals categorized as using the least-risky strategies, core and core plus, declined the most, 41.8%, in 2022 from 2021, spending on core and core plus was higher for all of 2022 versus pre-pandemic 2019 in an indication investors are turning from riskier strategies. What’s more, the core strategy funds overtook spending by the opportunistic funds in the fourth quarter, CoStar data shows.