Opportunistic properties exhibit the greatest risk but highest potential returns within the four major commercial real estate risk profiles (core, core-plus, value-add and opportunistic). These properties are classified by the need for substantial physical improvement, operational improvements and/or lease-up in order to reach stabilization.
Examples include new development, converting property uses, such as converting a warehouse to loft apartments, or complex legal situations such as purchasing a property out of bankruptcy or foreclosure. The opportunistic risk profile may also include “niche” property types or locations in unproven markets. Total returns for opportunistic properties and typically projected to be mostly derived from appreciation with only a small portion from current income. Initial yields for opportunistic properties are often very low, and the property may even exhibit negative cash flow until the investor is able to execute on their business plan for the asset. Holding periods for opportunistic properties are typically much shorter than the other risk profiles, with operators often selling the asset as soon as substantial financial improvements are recognized.