When it comes to investing, capital gains are almost always the goal. Investors have spent decades studying and experimenting with different techniques to maximize returns while attempting to avoid volatility and risk. The idea that higher returns are yielded from higher risks is commonplace, and often true. Consider investors who bought stock in Tesla when it was originally $17 a share—today, it’s worth roughly 10 times that. But is it possible to make a profit on moderate or lower-risk investments? Some investors have, and it’s through a process called asymmetric investing.
What Is Asymmetric Investing?
Asymmetric investing involves investing in a product or business where potential gain outweighs the potential risk; the returns reflect asymmetrically balanced risk/reward profiles. Investments with asymmetrical returns are less volatile and represent fewer opportunities for loss, and thus present higher potentials for profitable returns. In other words, the reward is greater than the risk, and the risk-adjusted return is significantly higher than what one would expect from a normal distribution of outcomes. It’s this potential for outsized profits and limited risk that entices investors.
Asymmetrical Returns in Real Estate
Asymmetrical returns can be found across many different asset classes, but they’re particularly compelling in real estate, where many investors have found positive cash flows, notably in the retail real estate market.
Real estate is a tangible asset that has historically provided a degree of security and stability that other asset classes, which can experience significant volatility in short periods of time, have not. In addition to its nature as a physical asset with inherent value, real estate can generate income in the form of rent or lease payments, making it an attractive investment for income-seeking investors.
Asymmetrical returns in real estate historically have provided the potential for significant profits with limited downside risk. This can be particularly appealing to investors who are risk-averse but still want to generate attractive returns on their investments while using the positive cash flow to invest in more properties. Additionally, asymmetrical returns can help to mitigate the impact of market volatility, which can be especially beneficial for long-term investors who are looking to build wealth over time.
Retail Real Estate
When it comes to real estate investing, the retail sector, which includes properties such as shopping malls, outlet malls and power centers, has provided compelling opportunities for asymmetrical returns. While the retail sector can be challenging to navigate with shifting consumer preferences, evolving retail trends and the rise of e-commerce, it has also provided attractive opportunities for investors who are willing to take on marginal risk in exchange for the potential for outsized returns. One of the keys to achieving asymmetrical returns in retail real estate? The ability to identify properties that are undervalued or underperforming, and then take steps to improve their value.
Value-Add Strategies in Retail Real Estate
Value-add strategies involve finding properties that are underperforming or undervalued and making improvements that increase their worth. In retail real estate, value-add strategies can take many different forms, but one of the most successful is retail repositioning.
What Is Repositioning in Real Estate?
Repositioning involves altering the use of a property to make it more profitable and to better meet the needs of a community. For example, a retail property that is not generating sufficient income might be converted into a mixed-use development with residential or office space. This can help to increase the property's value and generate higher returns for investors, while simultaneously attracting more people to the retail spaces that still exist there.
Repositioning functions to increase asymmetrical returns, further lowering risk, increasing the potential for cash flow and adding value to the community.
As leading real estate investors, RockStep seeks to utilize investment strategies that benefit our partners, like asymmetric investments. We’re committed to using processes like repositioning to further advance and add value to the properties we own, with a goal to redefine customer experiences while shifting to meet modern demands on retail spaces. You can learn more about our investment strategy and commitment to asymmetric investments here.