The BlueKey Approach to Core Real Estate

At BlueKey Equity Partners, we execute both value-add and income-focused investment strategies focused on properties in US markets that are expected to generate attractive risk-adjusted returns across different market cycles. 

We seek to acquire high quality and economically viable commercial real estate assets that are aligned with our partners expectations and values.

Real estate investment has always been a core asset class for our partners. We believe that through our vetted process of co-investments, limited partnerships and direct funds, BlueKey Equity Partners can enhance returns in this important asset class.

What Is Core Real Estate?

Core Real Estate is a term that refers to one of several strategies private equity firms may you to acquire, operate, and sell properties. Core real estate can also be referred to as real estate syndication. In private equity, Core real estate is considered the safest strategy and is closest to bonds in terms of risk vs. returns. The reason for this is that these strategies don’t often change properties and thus the cash flow is more stable and predictable. In general, core real estate funds tend to have the following attributes.

• Tenants: Core properties tend to have blue-chip, high-quality tenants on long-term leases.
• Locations: Core properties tend to be in major urban centers with plenty of demand.
• Capital Spending: Core owners/investors spend little on capital improvements because nothing major changes.
• Stability: Core properties tend to have stabilized occupancy rates and rents with predictable cash flow each year.
• Holding Period: The holding period for Core deals is often 10 years or more.
• Leverage: Core deals tend to use less leverage (40% or less) .
• Sources of Returns: Core properties generate most of their returns via income in the current period.

The Benefits of Core Real Estate

• Net Cash Flow: is similar to a dividend-paying stock.
• Appreciation: over the long run historically outpaces the rate of inflation.
• Leverage: can be used to buy rental property that produces double-digit returns.
• Low Correlation: between real estate and the stock market helps to minimize affects of stock market volatility
• Value Add: improvements and updates increase rents to market, which in turn increase property values and equity
• Easy to Diversify: an investment portfolio with the power of long-distance real estate investing

Important Caveats for the Core Real Estate 
Although core real estate has a risk/return profile similar to that of bonds, you should be aware of some of the nuances of this type of investing.

• Investment Illiquidity: Properties cannot easily and readily be sold or exchanged for cash without a potential loss in value, especially if markets are down.
• Asset Value Volatility: Even real estate has the potential to have swings in value. Over the short term this can cause loss in value.
• Asset Valuation Inaccuracies: Real estate is valued by estimates and appraisals there can be differences in the results which can mean that a property is not appraised properly.
• Leverage: Core real estate funds typically borrow money to purchase properties can amplify negative performance during falling markets.