Real Estate Management Basics

Concepts, actors, tasks, relationships, interrelation.Concepts, actors, tasks, relationships, interrelation.

Enrique Vallano 9th October 2013

Summary of content

• Real Estate Market overview• Actors & Roles

• Distribution of services

• RE Cycle• Samples

• Lines of profitability• Breakthrough of Investment line

• Breakthrough of Operation line

• FM in the RE cycle • FM internal cycle

• FM output

• Interrelationship

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ObjectivesObjectivesImprove ProfitabilityImprove

Value of RE assetImprove Quality of

Service

InvestorInvestment

ManagerAsset

Manager

Property

Manager

Facilities

Manager

Occupier

Tenant

User

HFM SFM OWNED

Real Estate Market, overview

ManagingManaging

Services to InvestorServices to Users

I- Investor’s target: Increase or keep the value of the investment/funds. Harvest profits

II- User’s target: Enjoy the good services offered by the building. Focus on their dedication.

Subjacent Profit, Risk

Actual Profit

Performance of Building

Performance of Services

Services

to

Building

Distribution of services

� Services to Investor (Property Management)

� Inv Mng- Presentation of different types of investment, per sector, location, yields, risks, nature, periods, etc.

� Asset mng- Presentation of different type of buildings, yields per type, market, location, dedication, perspectives, evolution, performance, benchmark, demand, etc.

� Property Mng- Operation of building, Selection of RE agents, look for Tenants, contract negotiation, rent collection, tax settlement and assessment, contract subcontractors, commissioning of equipments per dedication, supervision of services to building and users.

� Service to Building (Hard Facility Management)

� Design KPI/SLA depending on Investors will and dedication

� Contract Hard FM services: E&M, Water, Gas, HVAC, Lifts, Statutory Compliance.

� Monitor and report performance

� Assess on costs and rent, P&L of operation

� Services to Users (Soft Facility Management)

� Design KPI/SLA depending on dedication and capacity.

� Contract Soft FM services: Security, Cleaning, Gardening, Vending, Reception, Reprography, etc.

� Monitor and report performance

� Assess on costs and influence on P&L, in case SFM is included.

Life Cycle of RE Activities/Building

Asset Management

ConsultingProperty

Management

Facility Management

Every activity is linked to the other in a cycle, so all influence each other.

- A building without tenants has no value.

- A building overvalued, shows lower yield.

- A building with bad services, has no

tenants.

- A wrong rent, results in low yield.

-A badly maintained building, lose value.

Develop & Build

Valuation

Letting & Sales

-A badly maintained building, lose value.

- A wrongly Bought / Sold asset, is a captive

and less liquid investment.

Eg: 2 cars exactly equal:

A- Taken to official garage every Xk miles and maintenance book is duly sealed. All further remedial are carried out and recorded.

B- Oil changed at home, no records of brands, mileage. No records of any overhaul.

Q1- Which of these cars is more likely to be sold for a better price?

Q2- Discuss the consequences of a high maintenance building:

Impact of different approaches.

What consequences may have, not to

have a global perspective of the RE

business?

See attached graph and discuss why the

results are such.

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What results could we expect if the

universe was formed of a different

professionals?

Guess what each group of actors seen,

could have answered. Investment

manager, Asset manager, Property

Managers...Source: International Facility Management Association IFMA summary report: 2010 Energy Efficiency Indicator.

Lines and structure of Profitability

Yield= Annual rent/Value

ValueValue of investment = Value of sale of investment = Value of sale –– (Value of purchase + IR): (Value of purchase + IR):

High profit, One off event, Low confidence, Short term.

Operation of Building = rent Operation of Building = rent –– (taxes + cost of services): (taxes + cost of services):

Low profit, Recurrent incomes, High confidence, Long term

Depends on: Rent agreed, length of contract, break options, excess’ periods agreed, demand, % occupation, etc

Subjacent profit of the investment, based on expected variance of value of a Real Estate asset with time.

Influenced by demand, stability, Inflation, risk, quality, type of asset, location, etc.

High value investment, high value variance, high subjacent profit, high risk.

-Both lines of profitability go in parallel:

- A well managed building, increases its value.

- An improved building, give better rents.

Yields reacts quickly, depending on market factors.

Rents are attached to contracts, hence react in trends.

I- Investor target: Increase or keep the value of the investment/funds. Harvest profits

II- User target: Enjoy the good services offered by the building. Focus on their dedication.

How would you match the profit lines with the targets of investors and Users?:

Behaviour of RE investment 1 of 2

High Demand Low Demand

The volatility of RE market and Subjacent profits is slightly compensated by the recurrent incomes brought by Property

and Facility Management.

Even though in good times for Investment, they are despised. In not so good times, they are highly valued.

P&FM services in Asia are currently almost despised, whilst highly valued and growing in Europe. Eg: Hong Kong

Behaviour of RE investment 2 of 2

Source: IPD occupiers GEM

code & blue chip Index, 16th

Sept 2013

m/FTE= number of sqm used per FTE (space used)

£/FTE= Total property cost per FTE (space rented)

£/m= Total cost per sqm

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As a consequence of redundancies in the Banking and insurance sectors, number of employees and payroll decreases quickly, so does Space per occupant. (space used)

Total property cost per occupant takes much longer to adapt. Tenancy contracts are subject to break options, it may take more than 2 years, depending on contracts. (space rented)

Considering the total cost per sqm, costs increase as consequence of increase in utilities costs, indexation, etc. This is where FM can influence to lower this cost.

£/m= Total cost per sqm

2 years !!

Behaviour of RE operationS

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Capex come to help decrease Opex and Rates

New markets, Opex and rates are despised – All about Build, Rent and Profit. Short term transactions.

Old markets, share is more balanced – Asset Mng, Property Mng, Facility Mng, lower profits, long term operations

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FM Steps and Output, RE Cycle

II-- Planned Preventative MaintenancePlanned Preventative Maintenance:Planned actions to prevent failures and enhance the life and performance of equipments

IIII-- CorrectiveCorrective: : As a result of a PPM, there are number of corrective actions, driven to align the performance or replace exhausted parts.

IIIIII-- RemedialRemedial:As a consequence of a failure, there are needs to repair, replace certain parts. Remedial = Corrective + Consequential Loss

IV- The whole record of PPM, and Reactive, per asset, site, costs and

dates, allow to know what is the Total Cost of OwnershipTotal Cost of Ownership. The sum

Planned Preventative

Maintenance

Reactive Maintenance

II

III

I

IV

dates, allow to know what is the Total Cost of OwnershipTotal Cost of Ownership. The sum

of all costs associated to ensure the long life and well functioning of a system, composed of different parts, equipment, assets with a common function.

The TCO, allows to know what is the

V- Life Cycle of an asset/ system,

depending on its time and history of maintenance.

Once we know where is an asset in the in the Life Cycle, we may suggest its replacement in a Mid and long term

Investment plan.

The adequate Investment Plan, is tied to

the Asset Management, and closes the cycle of Real Estate Management.

V:

From FM to Asset management

-Landlords – happy, if their buildings increase their value

- Through PPM and Remedial, a good FM interprets the behaviour of the building and foresee and prevent further costs. PPM < Corrective + Remedial- The cost of maintenance is reduced and optimised. TCO- The life of the assets and equipment is prorroguedInvestment Plan- The service is recorded, which builds trust.- The value of the building increases

When FM works well:

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Sell & Rent

Property Management

- The value of the building increases

-Tenants/Users - happy, if their building offer good services:

- Commissioning adapt performance to dedication.- Good KPI/SLA adapt demand to needs.- Good KPI/SLA reduce costs and increase efficiency- Good FM ensures a better position in front of Tenants & Landlords, as there are “rules” fixed in advance and all parts know the game being played. No room for personal approach.- Increase occupation and rents, hence value of the building

- BBW will benefit from:

- Improved perception - Perceived as source of benefits instead of cost- BBW owns the client- White collar services, beyond M&E- Increased profitability.

Thanks for your attention

Questions & Feedback?

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Enrique Vallano MRICS, CBIFMEmail: enrique.vallano@BBworkplace.com

Mobile: 0785 5962147

Balfour Beatty Workplace

Unit 307; 3rd Floor; Enterprise House; 1-2 Hatfields

London SE1 9PG

www.bbworkplace.com