Indirect

Unlisted Real Estate Fund Styles: Core, Value-Add, Opportunistic

Purpose: Styles define risk–return, property strategy, and leverage use across the fund lifecycle.

Core Funds

• Stabilized assets, long leases, strong tenants

• Low/no repositioning

• Low leverage (≤40% LTV)

• Aim: steady income, low risk

• Example: L&G UK Property Fund (open-ended, long income core assets)

Value-Add Funds

• Assets needing moderate upgrades (leasing, refurb, repositioning)

• Medium leverage (~40–60% LTV)

• Value growth via active management

• Example: Via Pola, Milan (2016–19): office upgrade, sold at premium

Opportunistic Funds

• Developments or major turnarounds

• High leverage (>60% LTV)

• High risk, high return potential

• Example: Westlight Berlin (2017–20): full new office development

Value Creation by Style

• Core: Lease re-gears, maintain occupancy

• Value-Add: Refurb, ESG upgrades, partial expansions

• Opportunistic: Full development, lease-ups, rezoning

Leverage Use

• Core: low gearing to protect income

• Value-Add & Opp.: higher debt = higher return/risk

Conclusion: Fund style guides asset choice, risk level, and debt use, aligning strategy with investor goals.

Advantages:

1. Low entry barriers: Invest with hundreds, not millions

2. Small lot size: Scale exposure flexibly

3. Low transaction costs: No stamp duty, legal, brokerage

4. Diversification of specific asset risk: A single REIT holds many assets

5. Liquidity & divisibility: Daily trading; partial shares

6. Strong governance: Regular reporting & regulation

7. Overseas access: Exposure to global real estate markets

8. Tax benefits: Pass-through avoids corporate tax leakage

9. Geared returns: Moderate leverage enhances returns

Disadvantages:

1. Volatility: Reacts to equity market swings (e.g. COVID crash)

2. Weak inflation hedge (short-run): Equity sentiment may dominate price

3. High correlation with stocks: Dilutes diversification benefit

4. Low portfolio diversification power: Especially if REITs act like small-cap stocks

5. Loss of control: No say in property-level decisions

6. Market-based pricing: Sentiment > fundamentals in short run