Strategy for Real Estate

Real Estate Strategies
Prashant Das
MS-Land & Real Estate Development
Texas A&M University
Spring 2008
WWW.PRASHANT-DAS.COM

Real Estate Strategies
Objective
Introduction
PART-I: Corporate Real Estate Strategies
PART-II: Service Provider Strategies
PART-III: Real Estate Company strategies

Objective
To give an overview of
1. the need and
2. development process
for real estate strategy in various real estate sectors.

Local & National Economy
Adds New
Asset Market
Space Market
Cash flow
Supply (Owners selling)
Supply (Landlords)
Demand (Tenants)
The Real Estate SystemOriginal Source: ocw.mit.edu
Demand (investors buying)
Property Market Value
MktReq’d Cap Rate
Rents & Occupancy
Development
Industry
Yes
Development profitable?
Capital
Markets
Construction Cost
including land

PART-ICorporate Real Estate

Real estate owned by corporate has traditionally been one of the largest asset components.
Annual spending on a company’s real estate may vary from two to more than 10 percent of the total revenue

CRE: The Finance’s view
Why is Finance team interested?
Savings on all other fronts of business such as sourcing, business process redesign etc have been extracted already
CFO’s role has expanded up to the level of strategic planning

Typical Corporate Strategies

Integration of

real estate and corporate strategy

Centralizing Real Estate Functions
Leveraging technology
Outsourcing real estate

Cornell Balanced Real Estate Assessment model (COBRA)
The model considers the following attributes

Community Impact,
Architectural Branding,
Building Adaptability,
Defined Boundaries,
Regional Economic Volatility .
Net Income Per Employee (“NIPE”)

Uncertainty Analyses,
Risk-Reward Analyses
Monte Carlo Analysis

PART-IIService Provider Strategies
Strategic Approach
Needs assessment
Specification of service offering
Compensation arrangements and pricing level
Market segment coverage—geography, property type, scale, financing form, etc.
Form of work product deliverable

Service Provider Strategies
Competitive Differentiation
Cost
Service
Expertise
Market coverage
Prestige
Strength (deep pockets)
Risk allocation between client and service provider
One-stop shopping
Scale/Size
Focus/Specialization

Service Provider Strategies
Initiative to Stimulate Demand
General—i.e., You should invest in real estate because . . .
Service—i.e., You should have an independent due-diligence analysis because . . .
Type of service provider—i.e., You should retain a firm with these qualifications . . .
Specific company—i.e., You should work with our company because . . .
Transaction—i.e., You should retain us for this specific transaction because . . .
Contract terms—i.e., You should retain us to provide these services on these terms because . . .
Ongoing support—i.e., You can count on us to help you on an ongoing basis . . .

PART-III Development Company Strategies
Need for a Real Estate (Development) Company to strategize
Changing Economic and Real Estate Environments: A looming shift between phases of the real estate
Changes in Ownership and/or Leadership: Either an orderly or traumatic shift in key leadership
Mergers and Acquisitions: Every aspect of a company’s strategy
Tremendous Growth: Complete structure of the organization
Challenges to Growth: Reposition, expansion, diversification, or rationalization
Legacy Vision: desire to create a long-term vision and lasting legacy for good and bad times

Deloitte Enterprise Value Map

Conclusions

Huge opportunities lie in innovative real estate entrepreneurship
Divergent real estate strategies reflect very different primary-enterprise strategies
Several entities have developed multiple models for analyzing real estate cases and developing appropriate strategies.

Thanks
Download the working paper from
www.prashant-das.com