Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

Which term describes real estate investments that offer limited risk but lower returns over time?

1. Core real estate

2. Opportunistic real estate

3. Value-added real estate

4. High-risk assets

The correct answer is: Core real estate

Core real estate investments are characterized by their stability and lower risk profiles, often involving high-quality properties located in prime markets with dependable cash flows. These investments generally yield steady, predictable returns, even though they may not provide the high return potential associated with riskier strategies. Investors in core real estate typically seek capital preservation alongside consistent income, making this category attractive to those with a lower risk tolerance seeking stable investments. In contrast, opportunistic and value-added real estate involve greater risk and the pursuit of higher returns, often requiring significant renovations or operational improvements to enhance property value. High-risk assets usually encompass investments with considerable volatility and potential for substantial losses alongside high returns, which is not characteristic of core real estate. Thus, core real estate is the term that best fits the description of offering limited risk alongside lower returns over time.