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Portfoliomanagement Real Estate

This article gives an overview about the criteria that can be used in order to classify and evaluate real estate properties (i.e. the portfoliomanagement). The aim is to put together a portfolio that will last long term and generate good returns. The parameters return, risk and liquidity are to be weighed up under the aspect of the temporal possible.

The portfoliomanagement of real estate properties creates transparency and generates an overall perspective for all objects being held by a company. It helps to identify the strategic positioning of objects and to set strategic guidelines for operational planning and strategic management of resources.

The portfoliomanagement has as prerequisite that an assessment of all properties must be made according to clear, measurable criteria. The data quality depends on data availability, differentiation between internal and external data and acceptance of the criteria and the results. The criteria will be summarised in a matrix together with the perspective of long-term location development and attractiveness to competitors. This matrix is the basis for determining the alternative courses of action.

The recommendations for action can be summarized as follows:

  • Invest
  • Hold
  • Sell

The actions out of the portfoliomanagement – if analysed correctly – shall lead to the following improvements:

  • Earnings improvement in existing business
  • Portfolio optimization
  • Increase of operational efficiency
  • Optimization of the capital structure
  • Securing and increasing growth

Evaluation Criteria Total Portfolio

These criteria classify the existing overall portfolio:

  • Region
  • Types of use
  • Tenant sectors
  • Object age
  • Location
  • Investment Volumes
  • Scoring analysis
  • Terms of contract
  • Object sizes

Scoring of Objects

These parameters describe key figures of individual real estate properties:

  • Equipment
  • Building structure
  • Flexibility
  • Building environment
  • Optical condition
  • Representativeness
  • Technical condition
  • Location quality
    • Population density                
    • Proportion of persons under the age of 6                                 
    • Percentage of persons between 6-18 years of age                 
    • Percentage of persons between 18-65 years of age              
    • Percentage of persons over 65 years of age
    • Living space equipment                      
    • Demand relevance for housing applicants                                
    • Neighbourhood                                    
    • Living environment
    • Parking facilities                    
    • Infrastructure
  • Fluctuation
  • Term structure
  • Tenant creditworthiness
  • Market rent
  • Letting structure
    • Demographic characteristic: Old tenant under 18 years                             
    • Demographic characteristic: Age tenant 18 to under 45                            
    • Demographic characteristic: Age tenant 45 to under 65                            
    • Demographic characteristic: Old tenant 65 and older                                 
    • Duration of contract in years (long-term contract)                                
    • Demographic characteristic: average age of the member of the housing group to the average age of the total property                                      
    • Percentage of non-working people (under 18 and pensioners)                 
    • Percentage of working population                                
    • Professions: Blue and white Collars/Civil servants/self employed            
    • Share of early retirees                                       
    • Percentage of unemployed
    • Proportion of pupils/students/trainees                                      
    • Rental burden of the household – normal/medium/high                             
    • Average household income                                            

Market attractiveness

This describes the expected demand for real estate in a region or for an object:

  • General Conditions
    • Labor market situation
    • Income situation of households 2005                                                       
    • Political climate for the housing industry                                                        
  • Demographic and demand trends                                                              
    • Forecast of population development                                                         
    • Budgetary situations – number of persons per household    
    • Forecast development number of households                                               
    • Investment climate
    • Composition of population according to diversity criteria
  • Commercial evaluation / competition
    • Margin of the average rent                                            
    • Long-term vacancies in the region                                              
    • Competitor analysis – rental prices/operating costs/areas                  
  • On-site infrastructure
    • Shopping facilities                                              
    • Offers of education                                            
    • Offers of culture                                                 
    • Offers for leisure time

Competitive advantage

This describes the portfolio (object attractiveness) compared to competitors:

  • Building type                                        
  • Age of the apartment                                       
  • Standard apartment, residential building, living environment – overall satisfaction
  • Apartment size depending on the average                              
  • Balcony or loggia belonging to the apartment                                       
  • Cellar                                       
  • Neighbourhood and surroundings                               
  • Parking facilities                                  
  • Average rent per month/m2
  • Actual rent compared to average
  • Competitor analysis – comparison of operating costs                                         
  • Vacancies
  • Infrastructure         

Conclusio

Real estate portfolios are increasingly seen as a financial product. Investors often have no specific real estate know-how. Therefore a strong demand arises for understanding the existing portfolio in a comprehensive way. The portfoliomanagement and its matrix can describe the strengths, weaknesses, risks and opportunities in a transparent way. Contact us to analyse your portfolio and make the right decisions.

By Georg Tichy

Georg Tichy is a management consultant in Europe, focusing on top-management consultancy, projectmanagement, corporate reporting and fundingsupport. Dr. Georg Tichy is also trainer, lecturer at university and advisor on current economic issues.

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