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.
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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
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