investor objectives

So, is "value add" a real estate objective or strategy?   Those words are somewhat overused and encompass both an objective and a strategy.  Ideally, if you are actively involved in an investment - you are doing something to add value. This answers the question; value add is the action (the strategy) to achieve something (your objective). 
On that note, there are four main/ commonly recognized objectives.  

·       Preservation of Capital/Wealth - sometimes referred to as safety.  

·       Current Income - frequently measured by cash on cash return.  The focus here is on distributions either immediately after an initial investment or some point in the near future.

·       Capital Growth -  focuses on increasing value after the implementation of a strategy,  the passage of time,  or a combination of the two.

·       Diversification - while an objective, there will be a secondary objective tied to one of those listed above.

There are other objectives, and the real aim may be a mix of those listed above, depending on where the investor falls on the risk spectrum for this particular asset. The main investment strategies similarly follow the risk/return spectrum.  The four main strategies are:

·       Core - stabilized asset in a healthy market.  Consider its behavior almost bond like - with relatively steady returns. Frequently (but by no means always) categorized by a long term tenant with a NNN lease structure.

·       Core-Plus  or sometimes referred to as Enhanced Core- similar to Core, but not quite as stable - some risk, whether that is increased susceptibility to economic trends, weaker market, or lower credit quality tenant.

·       Value Add - the asset has some issue that is putting it at some disequilibrium with the stabilized market.  Examples include above-market vacancy, below-market rents, significant deferred maintenance, the need for capital investment, or upgrades - either aesthetic or functional. This disequilibrium, while increasing risk, also provides more possibilities for upside.

·       Opportunistic - think significant value add and high risk - such as purchasing an asset with no cash flow, major repositioning, or ground-up development.  Such investments are inherently riskier and, therefore, have the potential for higher returns.

These definitions are readily accessible with a simple internet search.  The strategy should be aligned with the objective.   Back when I taught Asset Management and Strategic Real Estate Management, I was always surprised by the number of students who would launch into their strategies without clearly defining their investor's objectives.   Opportunistic strategies tend to be more exciting,  but if your investors are single-family offices that are looking for diversification and preservation of wealth, you may be barking up the wrong tree.  Conversely, a NNN property with a long term creditworthy tenant is not going to knock the socks off an investor looking for significant capital appreciation.  You can develop a truly comprehensive strategy across the multiple real estate disciplines once you understand the ultimate objectives.