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EMBA 1 DW 2013 Final Individual Project By Yilmaz KARAUC April, 2013. New Trends & Winning Corporate Strategies in Commercial Real Estate. $2 000 billion: the total value of the real estate assets that should be disposed of by 58 European banks within 2 years, according to the IMF. - PowerPoint PPT PresentationTRANSCRIPT
$2 000 billion: the total value of the real estate assets that should be disposed of by 58 European banks within 2 years, according to the IMF.
Start the presentation
EMBA 1DW2013
Final Individual Project
By Yilmaz KARAUC
April, 2013
New Trends &Winning Corporate Strategies
in Commercial Real Estate
Real Estate Key Issues
Real Estate is about
LAND, LOCATION, ACCESIBILITY & BUILDABILITY
IMMOVABLEPublic Authorities
Long Term
Project
FINANCE
Dust & Muds
Claims
Made in
Local
Technical Standards
ALEAS
TAXESInterests
Commissions
Time
Fees
PEOPLE
Real Estate Value Chain
Ownership & Development
Finance(Equity / Debt)
Property Sale, Lease & Mgmt Construction Tenant Use
Developers
Real EstateInv. Funds
Home Builders
Investment Banks
Secondary Market
Indi. & Small Investors
Institutional Investors
Mortgage Brokers
Commercial Banks
DelegatedOwner
Asset Managers
Property Managers
Project Manager
Designers & Consultants
CommercialCompanies
Industrial Firms
Residential (multi-family)
Residential (single-family)
Equity
Debt
CMBS
RMBS
Real Estate Brokers
Trade Contractors
Revenue Flow
Real EstateInvestment
Fund
Institutional Investors
Indi. & Small Investors
Insurers
Other Investors
Tenants
Asset Manager
Property Manager
Real EstateFund
Manager
Construction Professionals
< Principal + Interest
Loans + Insurance >
Eq
uity
>
Equity >
< Fe
es
< Yield
< Equity
Fees + Yield + Expenses >
Fe
e +
Yie
ld >
E
xp
en
se
s >
In
tere
sts
>
Fair Value >< Asset
< Rent + Charges
< F
ee
s<
Wo
rks
Pri
ce
Fees >E
xpenses >
Banks
SV
Real Estate Broker
Commission >
Ca
pit
al
+ G
ain
>
+ Capital + Gain Capital + Gain + Bonus >
< Remaining Capital
Equity
Loans
Rent
Charges
Fair Value
< Fees + Expenses
Sector Cycle Issue
Speculative overbuildingOverleveraged assetsEconomic downturn
2007 2013 ? 2020 ?
Support by Regulatory BodiesMarking assets to market
BankruptciesNon-performing loansReluctance of financials
Lack of domestic creditLack of fresh capital
Financial stagnationDistress
Declining values
Incr
easi
ng v
alue
s
Recovery of financialsLocal bank markets
Secondary market re-emerge
Recognition of crisis
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-15
-10
-5
0
5
10
15
20
25
OfficeShop CenterLogistics
EU Market Total Returns
Face Value vs. Economic
Value? Pious
Hope?
Hidden cycle?
%
REGULATIONSComplexity
UNCERTAINTY
COSTS
Scarce lending
Funding gap
Market Constraints
Eurozone Crisis
Risk aversion
CASH
Constraints favor integrated players
What do Developers
compete for ?
The Gap
What’s aboutTenants’
considerations ?
Strategic resource
Accessibility
LocationTotaloccupancy
cost
Functionality
Organization
Employee wellbeing
Profit levers
Cost structure
Services
WasteCarbon
emissionWater use
Flexibility Risks Operatingefficiency
Performances
Listen to the Occupier
and don’t decideon its behalf!
The Gap
Building Owner
Occupiers - Employees
“Disconnected”
“Split incentives”
Fund Manager
Developer
Property Manager
Tenant
“Vertical integration:
tenant satisfaction”
REAL ESTATE MANAGER
Corporate Administration
Fund Management
Estate Management
Development (D & C)
INTEGRATION
Customer-centric strategies
The Gap
LARGEINVESTORS
CORPORATETENANTS
Fund Structuring& Governance
Development Partnership
Investment Partnership
Lease Partnership
Service Partnership
REAL ESTATE MANAGER
INTEGRATION
Development (D & C)
Corporate Administration
Fund Management
Estate Management
Customer-centric strategies
Strategy ImplementationCUSTOMER INTIMACY
BEST TOTAL SOLUTION
OPERATIONAL EXCELLENCE
PRODUCT LEADERSHIP
BEST TOTAL PRODUCT BEST TOTAL COST
Minimal performance level in the industry
Performance level of market leaders
Performance level of the proposed strategy
CUSTOMER INTIMACY
OPERATIONAL EXCELLENCE
PRODUCTLEADERSHIP
Tailored offering
Best Total Solution
Adequate Building & Services
Affordable Price
Comparative Business Plans
Net Surface : 42,000 m² Development Budget : 295 M€ Annual Rent : 600 €/m² Adaptation & Leasing Cost : 10 M€ Target Exit Yield: 6.25 % Exit Time (includes 4 years development): 7 years
To Be Leased After Development
Leased Prior Development
Loan / EquityLoan InterestEquity RateTotal Project BudgetLoan InterestsCommitted EquityLoss of Rent (months)
40 / 60 4.25 %12.00 %305 M€ 20 M€185 M€
12
60 / 40 3.75 %12.00 %295 M€ 34 M€114 M€
0
+ Risks -
PERFORMANCES To Be Leased After Development
Leased Prior Development
Net Profit
IRR Unlevered (ROI BT)
IRR Levered (ROEBT)
Equity Multiple
110 M€10.21 %10.27 %
1.60
136 M€13.24 %20.46 %
2.16
110 M€
1 765432
136 M€
Cash FlowTo be
Leased
Cash FlowPre-Leased
Comparative Cash Flows (Equity)
+ 150
+ 100
+ 50
0
- 50
- 100
- 150
- 200
OPTION 1To be Leased
OPTION 2Pre-Leased
or +
2 projects
Double gainLess risk
Profit+110 M€
Profit+86 M€
Profit+136 M€
Equity71 M€
Equity114 M€
Equity185 M€
Best
option?
Tenant
Tenant
Tenant
Conclusion
Thank You
Next is the Commencement Day.
Now, it’s time to start paddling
to catch andride the next wave!