Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

Which of the following is an example of core real estate?

1. Hotels

2. Raw land

3. Large office building

4. Outlets

The correct answer is: Large office building

Core real estate refers to properties that are typically well-located, have stable cash flows, and are of high quality. These properties generally attract long-term tenants and are less susceptible to market volatility. Large office buildings fit this definition because they are often situated in prime locations, have established lease agreements with reputable tenants, and provide consistent rental income. They are also usually fully compliant with building codes and have desirable amenities, making them a stable investment choice. In contrast, hotels are more sensitive to economic cycles and have fluctuating occupancy rates, which makes them less stable. Raw land does not produce income by itself and requires development before generating cash flow, leading to greater uncertainty and risk. Outlets, while they can be a strong retail investment, can be less stable due to changing consumer behaviors and economic conditions impacting retail success. Therefore, large office buildings best exemplify core real estate due to their reliability and consistent income potential.