ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
From “Location, Location, Location” to a broader View at Real Estate RiskFrom “Location, Location, Location” to a broader View at Real Estate Risk
Oliver UrschelSustainable Management of Housing and Real Estate
School of Economics and Business EngineeringUniversität Karlsruhe (TH)
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
2
Hello! • Guten Tag !
Goddag! Dzień dobry ! Bună ziua!
Jo napot kivánok! Добрый день! Добър ден! Добар дан!
Dobrý deň! Dober dan! Dobar dan! Mirëdita God dag! Goeden dag!
Tere päevast! Laba diena ! Labdien ! Hyvää paivää!
Góðan daginn! Grüezi! Bon jour! Καλημέρα!
Buon giorno! Bom dia! Buenos días!
Bon dia! İyi günler!
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
In the opinion of many real estate professionals real estate risk is dominated by three factors:
Definition of Real Estate Risk– Real Estate Performance:
Real Estate Risk: Change of Net Cash Flow or Change of Value
Slide 3
IntroductionIntroduction
Real Estate Risk
Real Estate Risk
LocationLocation
LocationLocation
LocationLocation
Total ReturnTotal Return
Net Cash Flow Return
Net Cash Flow Return
Change of Value Return
Change of Value Return
-Rental Income Operating Costs
Bound Capital
Fair Market Value (t1)
Bound Capital
-Fair Market
Value (t0)Investment-
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
1. Collecting risk related terms mentioned in the literature and assigning them to a previously developed risk category system
2. Arranging the risk related terms thematically– Synonymous terms in the same row (e.g. "economic development" and
"economy")– Similar terms in subsequent rows– Partly risk terms were assigned to several categories
3. Merging several risk terms to one risk– Terms often on low structural level, or applying only to few special situations
(for example home purchase savings promotion was assigned to subsidies in the category political, fiscal and legal basic conditions)
Literature analysis - proceedingLiterature analysis - proceeding
Slide 4
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Summary of a representative selection of 28 contributions concerning– general real estate risk management (3 contributions)– risk management of housing companies (1)– real estate portfolio management (3)– risk management of public private partnership projects (1)– risk assessment from the point of view of banks (5)– risk assessment of direct investments in real estate (2)– project development (6)– construction project management (4)– standard books of real estate management (1)– general risk management without relation to a spacial industry sector (2)
including risks, risk categories and risk indicators mentioned by the authors.
Results of a Literature Analysis regarding Real Estate RiskResults of a Literature Analysis regarding Real Estate Risk
Slide 5
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Table viewTable view
Slide 6
Risk categoriesRisk categoriesRisk related term…Risk related term… …is mentioned by author…is mentioned by author
Risk related terms summed up to risksRisk related terms
summed up to risks
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Location and market related risks– Discussed most intensely
Object-related risks during utilization phase– Disussed intensely, especially by contributions addressed to long-term investors
Object qualities– Rather weak presence in Literature. In most cases the authors make no difference between fixed
object qualities and object condition (changing during time)Object-related risks during construction phase
– Comparatively stron presence, especially in articles dealing with project development– Findings from the area of construction management should be integrated
General company-related risks– Surprisingly strong presence in Literatur – this may be caused by the assignment of general
financial risks to this category– Findings from the area of non-real-estate-specific risk management should be integrated (for
example IT- of personnel-related risks)
Results from the literature analysisResults from the literature analysis
Slide 7
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
LocationLocation
LocationLocation
LocationLocation
Slide 8
What should we learn from these results?What should we learn from these results?
Company related RisksCompany related RisksObject related RisksObject related RisksMarket- and Location-related Risks
Market- and Location-related Risks
nationalnational
regionalregional
locallocal
Micro-locationMicro-location
Management RisksManagement Risks
Staff-related RisksStaff-related Risks
Financial riskFinancial risk
Legal riskLegal risk
Risks from support processes
Risks from support processes
Rental incomeRental income
Operating costsOperating costs
Change of valueChange of value
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
companycompany„the object“„the object“
„the location“„the location“
How do the several risks influence Real Estate Risk?How do the several risks influence Real Estate Risk?
EconomyEconomy
Political, legal and fiscal
basic conditions
Political, legal and fiscal
basic conditions
Socio-demography
Socio-demography
InfrastructureInfrastructure
ImageImage
Neighbour-hood
Neighbour-hood
Natural DesatersNatural
Desaters
RE MarketRE MarketSu
pply
Supp
ly
Dem
and
Dem
andquantity
quality
quantity
quality
(theoretical) rental Value(theoretical) rental Value
Rental incomeRental income
Operation and maintenance expensesOperation and maintenance expenses
Net rental incomeNet rental income
Change of ValueChange of Value
RE Risk
Object qualityObject quality ManagementManagement
StaffStaff
Financial riskFinancial risk
Legal riskLegal risk
support processessupport
processes
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
The sustainability of buildings is an aspect of building quality– higher productivity and comfort for users– growing demand for sustainable buildings – willingness to pay up to 5%– sustainability certification allows market actors to include these aspects into
price calculation and the decision-making process– sustainability signals higher building quality advantages in tenant‘s and
buyer‘s markets Sustainability may result in lower operation and maintenance cost
– higher quality of construction, therefore lower maintenance cost– lower consumption of energy and other natural ressources– Optimized life cycle costs
Better performance– net rental income– change of value– lower risk (e.g. flexibility, obsolescence)
"location" adaption to environmental condition and climate change
What effect has the discussion on "sustainable development"?What effect has the discussion on "sustainable development"?
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Improved chances and/or reduced risks of sustainable buildings can be expressed and communicated by making use of already existing property rating systems
Lützkendorf, T.; Lorenz, D.: Sustainability assessment and / or property rating? Presentation at the CESB 07 Prague
First Test-Rating Results: „greener“ buildings = less risks First Test-Rating Results: „greener“ buildings = less risks
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
LocationLocation
Socio-demographySocio-demography
Politics, fiscal and legal System
Politics, fiscal and legal System
EconomyEconomy
InfrastructureInfrastructure
EnvironmentEnvironment
RE m
arke
tRE
mar
ket
The location is an important, but not the only risk factor in real estate– more differentiated view at location related risks– company related risks high influence of management quality on real estate
performance
Slide 12
Conclusions and remarksConclusions and remarks
Real Estate Risk
Real Estate Risk
LocationLocation
LocationLocation
LocationLocation
Company-related risksCompany-related risks
ManagementManagement FinanceFinance othersothers……
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
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Thanks for your attention ! Vielen Dank für ihre Aufmerksamkeit !
Många tack!
Dziękuję za uwagi ! Спасибо за внимание ! Köszönöm a figyelmüket !
Merci pour votre attention ! Gracias por la atencion !
Grazie per la sua attenzione! Südamlik tänu ! Liels paldies !
Tänan väga ! Labai aciu ! Faleminderit shumë ! Mange tak !
Благодаря! Efharisto' poli ! Dank u wel ! Takk fyrir ! Tusen takk !
Muito obrigado ! Mult'umesc foarte mult ! Tack så mycket !
Dakujem velmi pekne ! Hvala lepa Teşekür ederim !
ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
From “Location, Location, Location” to a broader View at Real Estate RiskFrom “Location, Location, Location” to a broader View at Real Estate Risk
Oliver UrschelSustainable Management of Housing and Real Estate
School of Economics and Business EngineeringUniversität Karlsruhe (TH)
If you have any questions, please do not hesitate to contact me:http://housing.wiwi.uni-karlsruhe.de [email protected]
