Opportunistic Real Estate Investment - What Can Property Development Do?

As interest in real estate continues to increase worldwide, trends bode well for real estate investments. While investors recognize the importance of real estate as an asset class, they underestimate the diversity of investment opportunities available. Having started with direct property investment and mortgages, investors then expanded into mutual funds and public securities. Recently, institutional investors are attracted by value-added and opportunistic investments in real estate. The large amount of investment capital hold by real estate private equity and opportunity funds spurs this trend towards opportunistic real estate investment. Nonetheless, there are different ways to realize the higher potential. Value-added investment can arise from the interaction between capital markets cycles and real estate property and long-term forces like demographics, changes in the regulatory framework as well as in the needs and preferences of tenants. Most likely, opportunistic investments are linked to improvements of the financial, physical or operational characteristics of real estate or a combination of the three. Due to the fact that the real estate development market is highly entrepreneurial and fragmented, investors` access to this kind of opportunities and their ability to manage risk is still limited. Although various developers have recognized the value of relationships with capital sources, institutional investors are often unaware of the barriers and promoters of opportunistic investments in property developments and redevelopments. Therefore, the paper analyzes the prospects and limitations of value-added investments during the development and redevelopment stage of a real estate asset¥s life cycle. In this way, the paper aims to contribute to a better understanding of wealth-creating opportunities in real estate investment through physical value added.