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Buying low and selling high

In retrospect, it's fascinating how sophisticated investors bought into the whole risk/return spectrum rationale for commercial real estate. Back in the 1980s, investors invested in real estate funds for income and some appreciation. If you wanted to take the risk for bigger returns, you did development...

By Jonathan D. Miller | Updated on August 20, 2009

In retrospect, it's fascinating how sophisticated investors bought into the whole risk/return spectrum rationale for commercial real estate. Back in the 1980s, investors invested in real estate funds for income and some appreciation. If you wanted to take the risk for bigger returns, you did development deals. Then consultants got more involved and institutional investors began depending more on research based strategies. The pension funds had their asset allocation models. It started to get complicated.

Real estate investment managers began adapting to the market demand and realized they could sell more funds and potentially raise more money with different strategies. They distinguished between core, value add and opportunistic strategies. Core focused on well-leased income producing properties. Value add investments were touted as property enhancement or releasing plays. Opportunity started out as development and morphed into global investing, and in the end involved putting down little equity and a lot of mortgage debt on core properties.The value add portfolio managers started depending more on leverage to boost returns too and then core managers followed suit.

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