The asset class Real Estate does equity or debt investments in real estates. That includes residential estates, commercial property and special property. Commercial property consists of hotels, production and office facilities. By special properties one can think of infrastructure, recreation and cultural facilities.
The advantages of owning a property are quite obvious. On the one hand one can participate in an increase of the properties value that gives some sort of inflation protection. On the other hand one receives periodic rents. Hence, there is right from the beginning a periodic payback that makes it quite interesting for investors who rely on that.
The universe of investments ranges from already established properties with tenants to new buildings and property development. However, even already established properties produce some sort of costs like maintenance and renovation. The location of the property is also quite important. A recession in a region can lead to lower property prices and overdue rents while a boom in a region can lead to higher property prices and the possibility to ask for higher rents. The expected returns on Real Estates investments rely mostly on the investment strategy, underlying assets and risk profile of the investment. Thus, one cannot give a precise target IRR for this asset class.
Core strategies invest in already established and completely developed properties with a stable tenant base. The risk is predictable and not very high. That means that the profit potential is also not high either.
Core Plus strategies invest essentially in core properties. However, those properties need a bit more renovation than simple core properties.
Value added strategies buy properties that need a certain amount of renovation and sell it later on with a profit. Those properties quite often suffer from a lack of management or do not have the capital to pay the renovation by themselves. The risk and the profit potential is higher than for core or core plus.
Properties from in this category need either a high level of renovation or have to be built from scratch. The risk in this category is very high compared to the other categories but the potential profits are also very high.