Successful real estate investment is not just about maximizing returns—it is also about carefully managing risk. We take a comprehensive and proactive approach to risk management, designed to protect our investors' capital while still pursuing attractive returns.
Robust Risk Assessment Strategies
Here at Cores Real Estate, our risk management process begins long before we acquire a property.
We employ a multi-faceted approach to assess potential risks:
Market Risk:
We conduct in-depth analysis of local market conditions, including supply and demand dynamics, economic trends, and demographic shifts. These factors are heavily weighted in our evaluation of markets and potential projects. In addition, we perform a careful examination of area demographics, crime rates, household income levels, and local homeownership rates.
Property Risk:
Our process also includes due diligence on each property, assessing its physical condition, historical performance, and potential for improvement. This takes the form of detailed inspections and analysis of maintenance records to identify any potential issues.
Financial Risk:
Our team carefully analyzes the financial structure of each deal, including debt terms, interest rate risks, and potential impacts on cash flow.
Operational Risk:
We assess potential challenges in property management, including local regulatory environments, tenant demographics, and operational costs.
Our risk assessment process is dynamic and ongoing. We continuously monitor our properties and markets for emerging risks and adjust our strategies accordingly.
Our latest offering, The West Oak, is now open for investment on a first come, first served basis. We anticipate it will fully subscribe quickly. Please click the 'invest now' button to access the offering documents and to make your investment.
Conservative Underwriting Practices
One of the key ways we manage risk is through our conservative underwriting practices. We are particularly cautious when it comes to rent growth assumptions. Our aim is to avoid over-reliance on projected rent increases, focusing instead on achieving a solid unlevered return on cost spread.
Our underwriting process includes several conservative elements:
- We use modest rent growth projections, typically assuming a 3% annual increase even if market forecasts are more optimistic.
- We make realistic expense assumptions, accounting for potential rises in operating costs and capital expenditures.
- Our exit cap rate assumptions are conservative, often at or above current market rates, even in markets where rates are expected to compress.
- Stress testing: We model various scenarios, including economic downturns, to ensure our investments can withstand adverse conditions.
This conservative approach helps ensure our investments remain viable even if market conditions do not meet the most optimistic projections.
Balancing Risk and Return in Our Investment Portfolio
While we are committed to managing risk, we also recognize the need to generate attractive returns for our investors.
We achieve this balance through several different avenues:
Diversification:
We invest across multiple markets and property types within the multifamily sector, reducing our exposure to any single market or asset.
Prudent Leverage:
We maintain conservative leverage levels, typically keeping our loan-to-cost ratio between 60-70%. This allows us to achieve attractive levered returns while simultaneously managing risk.
We believe this range strikes an optimal balance, providing the financial flexibility to enhance our investments without needlessly overexposing ourselves to market fluctuations.
Value-Add Focus:
By focusing on properties with value-add potential, we can create value through our own efforts, reducing our reliance on market appreciation.
In-House Management:
Our decision to manage properties in-house gives us greater control over operations and allows us to respond quickly to potential issues.
Collaboration and Partnership: Achieving Shared Success
Our success is built on the strength of our relationships. A commitment to collaboration and partnership extends to every aspect of our business, from our interactions with investors to our engagement with local communities and service providers.
Fostering positive investor relations goes beyond simple financial reporting. We strive to build long-term, trust-based relationships with our investors, treating them as true partners in our ventures.
This approach is characterized by:
Transparency:
We prioritize providing regular, detailed updates on property performance, market conditions, and our strategic decisions. Our commitment to transparency is reflected in our meticulous record-keeping practices - every action and decision is documented in our systems.
Accessibility:
Our leadership team make themselves available to investors for questions and discussions. We believe that open lines of communication are crucial for maintaining investor confidence and fostering long-term partnerships.
Education:
We take time to explain our strategies, market dynamics, and the rationale behind our decisions. This helps our investors understand not just what we are doing, but why we are doing it.
Alignment of Interests:
We co-invest in all our investments alongside our investors, ensuring that our interests are aligned with theirs.
This collaborative approach has led to high investor retention rates and has been instrumental in our growth from a small family office to a sophisticated multifamily investment firm managing over 1,000 units.
Partnering with Local Experts and Service Providers
Our success in expanding from our initial base in Los Angeles to markets across the West Coast and Southeast has been largely due to our ability to form strong partnerships with local experts and service providers.
These partnerships include:
Brokers:
We have cultivated extensive relationships with brokers in our target markets, and we consistently work to maintain these connections while establishing new ones. These relationships are invaluable for sourcing deals, particularly off-market opportunities that might not be widely available.
Local Consultants:
When expanding into new markets like Raleigh and Orlando, we formed relationships with local consultants to supplement our knowledge.
Contractors and Vendors:
We cultivate relationships with reliable, high-quality contractors and vendors in each of our markets. These partnerships are essential for executing our value-add strategies efficiently and cost-effectively.
Community Organizations:
We engage with local community organizations to better understand the needs of our residents and the broader community, helping us make more informed decisions about property improvements and community initiatives.
Fostering a Collaborative Internal Culture
Collaboration is an integral piece of the puzzle for our internal operations.
Despite our growth, we have maintained the collaborative spirit of a family office.
This collaborative culture is evident in several ways:
Cross-functional Teams:
We encourage collaboration between our acquisitions, property management, and asset management teams. This ensures that all perspectives are considered in our decision-making process.
Open Communication:
We maintain open lines of communication across all levels of the organization. Ideas and feedback are welcomed from all team members, regardless of their position.
Shared Learning:
We regularly share insights and lessons learned across our portfolio, ensuring that knowledge gained in one market or property benefits our entire organization.
Team Development:
We invest in the growth and development of our team members, fostering a culture of continuous learning and improvement.
Looking to the Future: Growth Guided by Principles
As we look to the future, we remain excited about the opportunities in the multifamily real estate sector.
The need for quality housing continues to grow in our target markets, and we believe our value-driven approach positions us well to meet this demand while delivering attractive returns to our investors.
We anticipate continued growth in our portfolio, potentially expanding into new markets that align with our investment criteria. However, this growth will always be guided by our core values.
We will continue to:
- Uphold the highest standards of integrity in all our dealings.
- Deepen our market expertise in existing and new markets.
- Seek out value creation opportunities that benefit both our investors and our residents.
- Maintain our disciplined approach to risk management.
- Foster collaborative relationships with all our stakeholders.
Our values are not just about what we do, but how we do it. In an industry often characterized by short-term thinking and a focus on quick profits, we believe our value-driven approach sets us apart.
By staying true to our principles, we aim to not only generate superior returns for our investors but also to make a positive impact on the communities where we invest.
This approach also serves as an effective risk management strategy, as our long-term perspective and commitment to integrity help us navigate market fluctuations and maintain stakeholder trust, ultimately leading to more stable and sustainable investments.
