Investors
Core to opportunistic: setting realistic return targets
Which IRR each strategy actually supports — and where business plans break in practice.
The core, core-plus, value-add and opportunistic labels are useful but often misread as return promises. They describe risk, not income. What actually arrives is decided in three places.
Where business plans break
Almost never on the entry price. In the cases we have seen, the purchase was usually defensible. It broke on exit timing: the plan assumed a sale after four years, the market did not offer one, and the financing matured.
Second classic: the letting assumption. A value-add plan assuming full occupancy in eighteen months has no reserve. If it becomes twenty-four, the return is gone — not because of six months of rent but because of the cost of extending the facility.
Realistic ranges
Core delivers mid single digits today with correspondingly low volatility. Value-add needs double-digit target returns to justify execution risk; below that the effort does not pay. Opportunistic strategies are underwritten far higher but hit target in fewer than half of cases.
What we recommend
Run every plan with the hold period extended by twelve months and the exit yield fifty basis points worse. What survives both is robust. And size the financing to hold period plus reserve, not to the base case.
In short
Returns are decided by exit timing and facility tenor, not by the entry price. Both need to be planned with reserve.
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