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ERES 2010 MILANO CONFERENCE
Deborah Levy
Department of
Property
University of
Auckland, NZ
Sussie Morrish
Department of
Management
University of
Canterbury, NZ
Acknowledgement: RICS
Presentation Format
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Introduction
Background to the study
Methods
Findings
Discussion
Implications
Introduction
 This study looks at business decisions relating to property within the
context of small to medium size enterprises (SMEs), which has received
little attention in the academic literature.
 Property is one of, if not the most valuable asset in a business operation.
 This becomes even more important in SME settings as they are often used
as leverage to access finance.
 Findings from the study will go some way towards better understanding of
how property contributes to the success or otherwise of SME operations.
 Flow-on effect to wider economic prosperity. SMEs are regarded as the
engine of many economies
Introduction
 In New Zealand there are currently close to 350,000 small
and medium enterprises compared to 1,600 enterprises
employing 100 FTEs or more.
 The most recent Statistics New Zealand report shows that:
Approximately 90% of enterprises employ 5 or fewer people
and are considered SMEs
 From 2001 to 2006, SMEs accounted for approximately 60%
of all new net jobs in the economy
Background
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Evidence from an exploratory study shows that portfolio
entrepreneurs use property strategically throughout the
different stages of their business operations.
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Knowing how and why they do this will enhance our
understanding of the strategic significance of real estate
to small to medium size business.
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While big corporations are conspicuous in their ownership
and management of commercial properties, SMEs are less
visible.
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There is very scarce literature at the interface between
property and SME research.
Research Problem
 SMEs are often constrained by the scarcity of
resources and property (i.e. bricks and mortar)
still remains a valuable currency that could
potentially assist SMEs in ensuring the growth,
development and in extreme cases the survival of
their business.
 Understanding the dynamics that exist within this
context has great practical implications for theory
and practice.
Property-related literature
 Studies into such issues as the optimal allocation
of real estate in institutional investment
portfolios, highlight the importance of property
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as collateral for loan purposes
to assist in the diversification
to assist in the optimal allocation of an
institutional portfolio
as a hedge against inflation
as a production resource
as a strategy for enhancing competitiveness
Background to the study
 A study by Morrish, Levy and Dong (2009) found that SME
portfolio entrepreneurs use property strategically in
business decision making.
 These decisions relate to finance, building space and other
business related issues.
 It was evident that portfolio entrepreneurs incorporate both
business and personal wealth strategies in their approach to
property ownership.
The role of property
 Findings of previous study
Finance and
investment
purposes
Business related
purposes
Personal reasons
Raising capital
Real estate asset to
run the business from
Assist family member
to enter a business
Accumulating profit
As a core business
Diversification and
risk reduction
Taxation reasons
Exit strategy
Acquiring the family
home (family assets)
Keep property assets
for retirement income
Income production
Providing space for
other business
activities
Entry into business
The role of property
 Findings of previous study
Entry strategy
Mid strategy
Exit strategy
Wealth creation
Complementary to
core business
Retirement income
Collateral for loan
purposes
Family inheritance
Methods
 Two-part study consisting of:
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Survey: 194 New Zealand SME
entrepreneurs
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6 in-depth semi-structured interviews
with entrepreneurs
Summary of survey results
 Approximately 50% (n=89) of respondents owned
property related to their business
 65% said property ownership has had an impact
on business decision making
 Of those that owned business-related properties,
approximately 90% said property had been a
sound strategic business decision
Property and life cycle stage
 Pre-venture: Long-term investment; As a core
component of a business; For income production
 Operational Life: For business accommodation
purposes; Long-term investment; To accumulate
profit
 Post venture: Long-term investment;
Retirement income, To accumulate profit;
 Overall: Long term investment; business
accommodation purposes; to accumulate profit;
retirement income
Phase two: Interview results
 Reasons for property purchase and development
varied across the different stages of business
operations.
 Suggest that ownership of property is not only
impacted by business strategy but also additional
external factors, lifestyle and personal
considerations together with specific property
investment criteria.
Factors affecting property decisions
Personal/family
issues
Financial
considerations
Business
operations
Factors affecting property decisions
Personal/family
Issues:
Financial
Considerations:
Retirement
Initial finance
Succession
Investment
Bank policy
Business
Operations:
Accommodate
business
Support growth
Support survival
Property and Life cycle stages of SMEs
entry
operational life
exit
Results: strategic impact of property ownerships
Personal/emotional
 “Owning your own home is embedded in kiwi culture , it gives a sense of
stability and encourages more of a long term view. More for emotional
reasons than pure investment criteria”
 Property is somewhere to live… you my not make the top dollar on it , but
you are not going to be disappointed..you’re basically translating those
assets to cash to fund your retirement”.
Financial
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“Investing in property is a waste of capital from a business perspective”
“I need to own the building because there is no other way I’m going to get money
from the bank”.
Business
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“.. You’ve got control over what you can do with it, whether you can expand and
how to configure it”
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“Your patient base comes generally within a five kilometers of where you
practice”.
Discussion
 This study advances theoretical understanding of the
interface between SME operations/processes and strategic
property management and development, enhancing our
understanding of the value property brings to business.
 Triangulation method has allowed insights into the
behaviour of SME entrepreneurs with regards to the role of
their property assets
Discussion
 Combination of findings from the finance literature and the
research studies relating to entrepreneurial behaviour
 Importance in understanding the life cycle effects of
property investment
 Important to understand the influence of personal
requirements in business decisions
Implications and further research
 In addition the results of this study provide practitioners
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with a deeper insight into the way SMEs view, acquire,
manage and dispose of property.
Setting up a property fund for SMEs?
Banking policy
Fiscal policy
Property funds
Property development