What We Do

Real estate assets are typically grouped into four primary strategy categories based on strategy and inherent risk. Those four categories are: core, core-plus, value-added and opportunistic. The key differentiator among these categories is the risk-return profile. Moving between these strategies is a balancing act between taking on more or less risk, and in theory, being compensated for that risk with a higher or lower return.

At WealthStone, we take into consideration in the risk-return profile a variety of factors including:

• Geography: Location has a significant impact on risk. An asset in the largest markets over smaller, secondary markets where there is less transaction activity impacts both the level of liquidity and the depth of product type available. Larger markets play a critical role in mitigating risk, since they dramatically improve the desire for tenants, buyers, and sellers to transact.
• Debt: Increasing debt levels typically increases risk. Moderate debt at prudent interest rates usually furthers partnership returns, yet it can be detrimental when a property cannot service its mortgage payments. An opportunity with a high return that is loaded with high debt can present an unreasonable risk in order to achieve that higher return.
• Asset Class: The type of real estate property has a significant impact on the risk profile. Multifamily for-lease, including specialized multifamily such as senior living and student housing, as well as industrial properties and necessity retail such as grocery stores and pharmacies typically involve lower risk than other asset classes. Properties such as office buildings and shopping centers with discretionary retail are usually considered moderate risk. Finally, properties which are heavily dependent on active operations to produce income, such as hotels, generally feature a higher risk profile. However, when bought correctly, a hotel’s value can increase substantially through operational improvement and produce higher returns.
• Simplicity: Risk often has an immediate correlation with the number of moving parts to a real estate opportunity. Buying a long-term, fully leased office building that requires minimal renovations carries less risk than a ground-up development of the same office building, hence there is a spectrum of returns among different opportunities.
• Management: Partnering with a team that has experience with specific asset classes, markets, demographic trends, property operations, renovation/development and financing options can mitigate the inherent risk in real estate.
• Due Diligence: Knowledge is key. Information about a major new tenant looking for space, an airport expansion, a major employer moving into the area, new highway access, convenient new zoning regulations, etc., can be used to gain a competitive advantage when pursuing real estate opportunities. Real estate is local and owners take advantage of a thorough due diligence processes to obtain information that can reduce risk and provide improved returns, or to disengage from a potential opportunity when appropriate.