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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 Risk
Oliver Urschel
Sustainable Management of Housing and Real Estate
School of Economics and Business Engineering
Universität Karlsruhe (TH)
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
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!
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ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Slide 3
Introduction
In the opinion of many real estate professionals real estate risk is dominated by
three factors:
Location
Real Estate
Risk
Location
Location
Definition of Real Estate Risk
– Real Estate Performance:
Net Cash Flow
Return
Rental Income
-
Operating Costs
Bound Capital
Total Return
Change of
Value Return
Fair Market
Value (t1)
-
Fair Market
- Investment
Value (t0)
Bound Capital
 Real Estate Risk: Change of Net Cash Flow or Change of Value
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Slide 4
Literature analysis - proceeding
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)
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Results of a Literature Analysis regarding 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.
Slide 5
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Slide 6
Table view
Risk categories
Risk related terms
summed up to risks
Risk related term…
…is mentioned by author
ERES 2009 – Stockholm – 2D
Slide 7
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Results from the literature analysis
294
102
26
Location and
Market
147
108
99
Object (in use)
31
15
Object (qualities)
39
Object
(construction)
Risk related terms
49
Risks
Company
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)
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
What should we learn from these results?
Market- and Locationrelated Risks
Object related Risks
national
Management Risks
Location
regional
Staff-related Risks
local
Location
Micro-location
Company related Risks
Financial risk
Rental income
Operating costs
Risks from support
processes
Change of value
Legal risk
Location
Slide 8
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
How do the several risks influence Real Estate Risk?
„the location“
Political, legal
and fiscal
basic
conditions
Infrastructure
„the object“
Object quality
RE Risk
Natural
Desaters
RE Market
quantity
quantity
quality
quality
(theoretical) rental Value
Demand
Neighbourhood
Supply
Image
Sociodemography
Economy
company
Management
Rental income
Staff
Operation and maintenance expenses
support
processes
Net rental income
Change of Value
Financial risk
Legal risk
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
What effect has the discussion on "sustainable development"?
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
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Very good property market conditions
Superior building (in terms of sustainability)
Average building (in terms of sustainability)
Poor building (in terms of sustainability)
Average property market conditions
Superior building (in terms of sustainability)
Average building (in terms of sustainability)
Poor building (in terms of sustainability)
Poor property market conditions
Superior building (in terms of sustainability)
Average building (in terms of sustainability)
Poor building (in terms of sustainability)
Poor
Very Poor
10
Disastrous
9
Mediocre
8
Slightly below Ø
Very good
3
Rating Scores
4
5
6
7
Ø
2
Good
1
Excellent
Multiple-Family Dwelling
Slightly above Ø
First Test-Rating Results: „greener“ buildings = less risks
2.9
3.6
5.3
3.4
4.2
5.9
4.3
5.0
6.7
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
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
Slide 12
Conclusions and remarks
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
Location
Economy
Location
Infrastructure
Environment
…
RE market
Location
Politics,
fiscal and
legal System
Location
Socio-demography
Real Estate
Risk
Management
Finance
Company-related risks
others
ERES 2009 – Stockholm – 2D
Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk
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 !
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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 Risk
Oliver Urschel
Sustainable Management of Housing and Real Estate
School of Economics and Business Engineering
Universität Karlsruhe (TH)
If you have any questions, please do not hesitate to contact me:
http://housing.wiwi.uni-karlsruhe.de
[email protected]