Risk tolerance Commercial Real Estate deals tend to run the gamut of risk/reward. Low risk investments are typically stabilized assets that have conservative leases and tenants in place close to or at full occupancy. These are usually longer hold periods and are sometimes referred to as “mailbox money”, with a secure dividend check every quarter. Other deals are “value add”, which take on more risk to make substantial improvements to a property, typically increasing both occupancy and rents. Development deals also offer attractive returns at higher risk, and can encompass land entitlement, construction, and operation of a new facility.
Desire for passive investments As an investor you take a passive role in the ownership of real estate commercial investments. Investment companies set up full property management, handle taxes, finances, accounting, and an investor simply receives predetermined profit splits. It also has the advantage of limiting liability to amount invested due to passive nature.
Cash flow vs appreciation Lower risk deals tend to have more stabilized values but produce cash flow over long terms that help meet investor cash flow goals. Appreciation and value add deals can generate a large profit but take on more risk to attempt those objectives.