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: Retail investors can invest with a few hundred dollars vs. millions for direct property.

2. Small lot size: Easy to scale exposure without buying/selling entire assets.

3. Low transaction costs: Normal equity fees, no high stamp duty or brokerage.

4. Diversifies real estate risk: A single REIT may hold hundreds of assets across multiple locations.

5. Liquidity & divisibility: Daily trading, partial share ownership possible.

6. Strong governance: Strict reporting standards; regular financial disclosures.

7. Tax benefits: Pass-through structures reduce corporate tax leakage, improving after-tax returns.

8. Access overseas: REITs can easily invest internationally.

9. Geared returns: Moderate leverage often used to boost returns.

Disadvantages:

1. Volatility: real-time pricing and influenced by broad equity market sentiment

2. Stock market correlation: REIT returns often move with equities short-term, reducing pure property diversification.

3. —> hence, no inflation hedge pattern like direct real estate

4. Low diversification in multi-asset portfolios: If REITs behave like small-cap stocks.

5. Different pricing drivers: Short-run REIT pricing can reflect market sentiment rather than property fundamentals.

6. Loss of control: Investors have no direct say in property decisions.