Market

IRR Prime Secondary

Class A 4-7% 6-9%
Class B 5-8% 8-12%
Class C 8-10% 10-15%

Market
CASH MULTIPLE* Prime Secondary
Class A 1.3-1.5x 1.5-1.7x
Class B 1.5-1.7x 1.7-2.0x
Class C 1.7-2.0x 2.0-2.5x

* Assuming a 7 year hold

Market
STABILIZED YIELD Prime Secondary
Class A 3-6% 5-8%
Class B 5-8% 8-10%
Class C 8-10% 10-12%

Note: These are based on what I personally start with for an avg deal in typical market conditions.
Obviously, there will be significant variation between asset classes, deal size, scope of work, and
specific markets. Also, at market cycle peaks or troughs, you'll need to adjust down or up
accordingly.
t
Tertiary
9%+
12%+
15%+

t
Tertiary
1.7x+
2.0x+
2.5x+

t
Tertiary
8%+
10%+
12%+

g deal in typical market conditions.

ses, deal size, scope of work, and
need to adjust down or up
 Market
IRR Prime Secondary
Class A 6-9% 7-12%
Class B 8-12% 12-16%
Class C 10-15% 15-20%

Market
CASH MULTIPLE* Prime Secondary
Class A 1.5-1.7x 1.7-2.0x
Class B 1.7-2.0x 2.0-2.5x
Class C 2.0-2.5x 2.5-3.0x

* Assuming a 7 year hold

Market
STABILIZED YIELDS Prime Secondary
Class A 4-8% 7-10%
Class B 7-10% 10-13%
Class C 10-13% 13-16%

Note: These are based on what I personally start with for an avg deal in typical market conditions.
Obviously, there will be significant variation between asset classes, deal size, scope of work, and specifi
markets. Also, at market cycle peaks or troughs, you'll need to adjust down or up accordingly.
t
Tertiary
12%+
16%+
20%+

t
Tertiary
2.0x+
2.5x+
3.0x+

t
Tertiary
10%+
13%+
16%+

al in typical market conditions.

deal size, scope of work, and specific
st down or up accordingly.
 Market
IRR Prime Secondary
Class A 12-15% 15-18%
Class B 15-18% 18-22%
Class C 18-22% 22-26%

Market
CASH MULTIPLE* Prime Secondary
Class A 2.0-2.5x 2.5-3.0x
Class B 2.5-3.0x 3.0-3.5x
Class C 3.0-3.5x 3.5-4.0x

* Assuming a 7 year hold

Market
STABILIZED YIELDS Prime Secondary
Class A 10-12% 12-15%
Class B 12-15% 15-18%
Class C 15-18% 18-24%

Note: These are based on what I personally start with for an avg deal in typical market conditions.
Obviously, there will be significant variation between asset classes, deal size, scope of work, and specifi
markets. Also, at market cycle peaks or troughs, you'll need to adjust down or up accordingly.
t
Tertiary
18%+
22%+
26%+

t
Tertiary
3.0x+
3.5x+
4.0x+

t
Tertiary
15%+
18%+
24%+

al in typical market conditions.

deal size, scope of work, and specific
st down or up accordingly.
 DEFINITIONS
Core: Generally considered to be a lower-risk/lower-return strategy, this approach uses relatively low lever
and focuses on stable, fully leased, multi-tenant properties within strong, diversified market areas. The
properties generally do not require significant improvements or renovations.

Core Plus: This approach also focuses on core-like properties, but with an increased opportunity for
potentially improving the property’s net operating income through modest measures such as rent increases
upon lease rollovers or by modest property improvements. This is generally considered to be a moderate-
risk/moderate-return strategy.

Value-Add: This approach is considered a medium to high-risk strategy which generally involves making
relatively significant property improvements so that the market may assign a higher value to the property.
Properties may be considered candidates for a value-add strategy when they exhibit management or
operational problems, require physical improvement or suffer from capital constraints. This approach may
offer medium to high return objectives.

Opportunistic: Typically considered to be a high-risk/high-return strategy involving development properties,

redeployment of markedly underutilized properties or other extensive enhancements.

Class A: These properties are generally newer properties built within the last 15 years with top amenities,
high-income earning tenants, and low vacancy rates. Class A buildings are well located in a market and ar
typically professionally managed. They typically demand relatively high rents and have very few deferred
maintenance issues.

Class B: These properties are generally older, tend to have lower income tenants and may or may not be
professionally managed. Rental income is typically lower than Class A, and the properties may have some
deferred maintenance issues. Generally, however, these buildings remain relatively well maintained. These
are often properties that sponsors seeking “value-add” opportunities may tend to chase because through
renovation and common area improvements the property can often be repositioned to be marketed at high
rental rates. Buyers are generally able to acquire these properties at higher cap rates (i.e., lower purchase
price relative to net operating income) than for Class A properties, because Class B properties are viewed
somewhat riskier prospects.

Class C: Class C properties are typically more than 20 years old and located in less than desirable location
The properties are generally in need of renovation, including updates of a building’s infrastructure, and ten
have lower rental rates compared to other local properties. Some Class C properties need significant
redevelopment work before they can be expected to provide steady cash flows.

Source: RealtyShares

Prime Market: A large (typically 5M+) and established metropolitan market area with the best markers for
populartion growth, job growth, and all other traditional and alternative economic markers. This is where
people and jobs are located and is expected to continue to flood into for the forseable future. We tend to s
the lowest cap rates (and thus highest valuations) here.
Secondary Market: A medium (typically 2-5M) and growing metropolican market area that share many of
same qualities as Prime markets, just typically lower on economic drivers such as investment activity, sale
volume, job market strength, growth rates, rent growth, market stability, etc... However, these markets ofte
have more growth potential than the already established prime markets. We tend to see the moderate cap
rates (and thus moderate valuations) here.

Tertiary Market: Small (typically <2M) market areas that have had concentrated job markets and limited
popular and job growth. We tend to see the hgihest cap rates (and thus lowest valuations) here. Investors
often make opportunistic bets in select tertiary markets betting on outsized growth potential.