What are the different real estate investment strategies?

Written by Harrison LeFrak | September 8, 2021

Harrison LeFrak of LeFrak reviews the different types of real estate investment strategies.

Key Takeaways

Harrison LeFrak of LeFrak - which has been investing in real estate for over 100 years - describes the different real estate strategies investors can access.
Core and core plus strategies are lower risk strategies relying predominantly on existing tenants to generate cash flows. Often investors access these through public vehicles like REITs.
Opportunistic/distressed investing are riskier strategies where investors buy properties where a lot of work needs to be done to the property to generate a return - the majority of the return comes from capital appreciation.
Real estate can be owned on both the debt and equity side, with debt typically being less risky than equity.

Transcript

Hi, I'm Harrison Lefrak, I'm a vice chair and principal of Lefrak.

Everybody who owns their own home is in the real estate business, and there are a number of choices that that people have to invest more money in real estate beyond their own home. The market is certainly one of them - [there are] many very well-run public companies with no entity-level corporate taxation set up to give people an individual slice of a very large portfolio of properties with a great management team and financial leverage embedded. And oftentimes the REITs are specialists in terms of property type and location.

Slightly different to that are a group of real estate opportunity funds where financial sponsors are doing five to seven year commingled leveraged opportunity funds, buying distressed properties or buying properties that have something wrong with them. They need a tenant. They need to be reconfigured. They need to be repurposed. Taking advantage of that and then generating a high return for clients is another way.

Another way of approaching real estate is a core-plus vehicle, which is buying existing real estate that's healthy and cash flowing, but has something that can be done to it or some improvement, but not quite as dramatic an improvement in its performance characteristic as an opportunity fund.

And then finally, there are financial sponsors that buy straight core real estate that's meant to just be well-run, well managed, produce an income.

And there is a whole industry of financial sponsors and mortgage rates that address real estate from the debt side. And many investors prefer the the debt side of the equation because it's secured by the real estate, either senior or junior. And there are many asset managers and other financial professionals who generate good returns for their clients by owning the debt against the real estate as a way to pick up more income than a publicly traded debt securities would otherwise offer. And that is a whole other universe that is worth exploring again as part of constructive portfolio for clients.

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