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Modern Real Estate Investing Intro Series

Part III. - Asset Categories & Their Importance

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Commercial real estate investing can produce

significant returns for investors while providing the

security of a physical asset; however, it’s important to

distinguish between the types of real commercial real

estate as they carry different benefits and strategic

considerations. Depending on your investing goals the

type of real estate you are investing in can present their

own unique set of risk / reward profiles. If you believe

that a certain, once ignored neighborhood is up and

coming amongst millennials you may want to invest in

properties that provide rental housing to

accommodate that demand.

Asset Categories

If you believe that a burgeoning community has a pent

up demand for retail then you may want to invest in a

retail property and so on depending on larger socio

and macroeconomic trends.

The commercial real estate market is primarily divided into six different asset categories: multi-family, office, industrial, retail, hospitality and development.

Macroeconomic factors and shocks impact each category of underlying asset in a different way; each has benefits and drawbacks, and should be considered in the context of an investor’s existing portfolio and long-term strategy.

© 2015 EquityMultiple, Inc. All rights reserved.

ASSET CATEGORY WHY WHEN

Multi Family Multifamily properties represent the most basic sector of real estate and fulfills the

most basic of human needs: a place to live. Multifamily properties are attractive to

investors because of the built in, perpetual demand for housing. Further, annual rent

increases provide a nice hedge against inflation

Multifamily investments are attractive in markets that are supply constrained and

are seeing population growth due to strength in the underlying economy.

Office Office investing provides some of the most stable returns available within the real

estate spectrum. The long term nature of the underlying leases (often 5-10 years)

provide office owners with predictable, stable cash flows.

As the local or regional economy improves and expands, businesses grow

alongside requiring office space to house their employees. Although, there has

been a recent trend towards co-working or remote working there is always a

need for offices to maintain a headquarters..

Industrial properties, often provide fairly stable returns for owners due to the long term nature

of the underlying leases alongside very low overhead costs. Industrial properties

range from storage facilities all the way to large scale e-commerce sorting facilities.

Industrial investing tracks local and national economic trends. If there is overall

growth in the manufacturing base of a local economy, the demand for industrial

product increases. However, since industrial properties most closely mirror

macroeconomic trends, these properties are often the first to feel the impact of

any softening in the economy.

Retail So long as there are consumers, retail properties will remain a mainstay of commercial

real estate. And despite retail properties having a close correlation with the overall

economy, retail leases are often some of the longest in duration providing investors

with stable, long term cash flows

As the overall economy improves the retail sector immediately sees an increase

in demand.

Hotel / Hospitality As the economy continues to show positive improvements the hospitality sector will

continue to grow. Hotel properties are closely correlated with the overall economy

The hotel sector can often provide outsized returns in growing economies. When

investing in hotels, having the right operator is often times as important, if not

more important, than the location

Development Development projects are often sought to meet a pent up demand for a certain asset

class in the local economy. Development deals are considered some of the riskiest on

the investment spectrum but can offer the most outsized returns.

Development is driven entirely by supply and demand for certain products in a

market but due to the complexity involved in any development along with the

level of capital intense requirements, pricing, timing and an experienced

developer are paramount

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Within these asset categories, not every project is created equal. Risk and return profiles can vary greatly within an asset

category based on the geographic market where it is located, the stage of development or management of the asset,

and the structure of the project’s financing and investor payout.

Real Estate Project Types

TYPE WHAT WHY

Core Stabilized, cash-flowing properties that are over 90% leased and

secured by long-term leases. Typically located in primary markets

with strong fundamentals, and do not need significant upgrades

Population growth is expected in a given market, and rents are

expected to risk

Core Plus Located in primary or secondary markets, and between 75 and 90%

leased at or below market rate

With expiring leases and upgrades, rents can be increased

significantly, presenting upside for investors

Value Add Below 75% leased, in a primary, secondary or tertiary market. Likely

to require upgrades in order to compete for renters

Much like growth stocks, these assets produce low initial returns but

can deliver substantial upside if upgrades are effective

Ground-up Undeveloped land with the potential for construction of multifamily,

office, retail, and/or industrial, depending on zoning constraint

Can carry substantial risk. However, if potential tenants are

established and with compelling development plan, can carry the

most upside

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We select projects that carry the best risk-adjusted return for investors. In many cases this will entail substantial cash flow

early in the term. In almost all cases, the projects we select will be in primary or, occasionally, secondary markets. These

projects will span asset categories and deal types, though equity investments in ground-up development is unlikely to be

featured. Above all, we believe that trusting the sponsor company and their project plan is key to mitigating risk.

The EquityMultiple Strategy

Return

20+ %

15 %

12 %

8 %

Value Added

EquityMultiple Focus Risk

Core Core Plus Value Added Opportunistic

Growth OrientedSecurity of Income

6 %

© 2015 EquityMultiple, Inc. All rights reserved.

Real estate has always been a difficult asset class to invest in due to its capitally intensive nature: oftentimes, you need

significant capital outlays to be part of a real estate project. And whether or not real estate is part of your portfolio (and

we would argue it should be), EQUITYMULTIPLE provides investors exposure to a range of asset classes and types to

allow them to mold their portfolio based on their own risk / return profile. Whereas publicly traded REITs are subject to

the same volatility as stock market assets and are fee heavy, and owning large share or the entirety of one property can

expose a large portion of your capital to the fate one project, EQUITYMULTIPLE allows you to diversify your risk across a

number of different projects.

Diversifying Your Real Estate Portfolio

Questions? contact@equitymultiple.comExplore the Platform:

www.equitymultiple.com

Thank you!

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