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Commercial real estate investors use the term "institutional-grade real estate," and "everyone" knows what it means. However, there is no clear stated definition of the term. What "everyone knows" is articulated differently by different investors, but most agree on the basic concepts that distinguish this property class.
A simple definition of institutional-grade real estate is: real property investments that are sought out by institutional buyers and have the capacity to meet generally prevalent institutional investment criteria. True institutional buyers are limited to U.S. and foreign pension funds, foundations, endowments, foreign life insurance companies, and certain foreign government entities that function like pension funds. U.S. life insurance companies are included in their capacity as equity investors for pension funds and other institutional clients.
There is a natural synergy between the real estate and the investment, which can be related to degree of risk. The physical and financial characteristics of institutional-grade property are such that the degree of risk is lower than in noninstitutional-grade property. Superior improvements in a superior location reduce risk related...