$2 000 billion: the total value of the real estate assets that should be disposed of by 58 European banks within 2 years, according to the IMF.

Start the presentation

EMBA 1DW2013

Final Individual Project

By Yilmaz KARAUC

April, 2013

New Trends &Winning Corporate Strategies

in Commercial Real Estate

Real Estate Key Issues

Real Estate is about

LAND, LOCATION, ACCESIBILITY & BUILDABILITY

IMMOVABLEPublic Authorities

Long Term

Project

FINANCE

Dust & Muds

Claims

Made in

Local

Technical Standards

ALEAS

TAXESInterests

Commissions

Time

Fees

PEOPLE

Real Estate Value Chain

Ownership & Development

Finance(Equity / Debt)

Property Sale, Lease & Mgmt Construction Tenant Use

Developers

Real EstateInv. Funds

Home Builders

Investment Banks

Secondary Market

Indi. & Small Investors

Institutional Investors

Mortgage Brokers

Commercial Banks

DelegatedOwner

Asset Managers

Property Managers

Project Manager

Designers & Consultants

CommercialCompanies

Industrial Firms

Residential (multi-family)

Residential (single-family)

Equity

Debt

CMBS

RMBS

Real Estate Brokers

Trade Contractors

Revenue Flow

Real EstateInvestment

Fund

Institutional Investors

Indi. & Small Investors

Insurers

Other Investors

Tenants

Asset Manager

Property Manager

Real EstateFund

Manager

Construction Professionals

< Principal + Interest

Loans + Insurance >

Eq

uity

>

Equity >

< Fe

es

< Yield

< Equity

Fees + Yield + Expenses >

Fe

e +

Yie

ld >

E

xp

en

se

s >

In

tere

sts

>

Fair Value >< Asset

< Rent + Charges

< F

ee

s<

Wo

rks

Pri

ce

Fees >E

xpenses >

Banks

SV

Real Estate Broker

Commission >

Ca

pit

al

+ G

ain

>

+ Capital + Gain Capital + Gain + Bonus >

< Remaining Capital

Equity

Loans

Rent

Charges

Fair Value

< Fees + Expenses

Sector Cycle Issue

Speculative overbuildingOverleveraged assetsEconomic downturn

2007 2013 ? 2020 ?

Support by Regulatory BodiesMarking assets to market

BankruptciesNon-performing loansReluctance of financials

Lack of domestic creditLack of fresh capital

Financial stagnationDistress

Declining values

Incr

easi

ng v

alue

s

Recovery of financialsLocal bank markets

Secondary market re-emerge

Recognition of crisis

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-15

-10

-5

0

5

10

15

20

25

OfficeShop CenterLogistics

EU Market Total Returns

Face Value vs. Economic

Value? Pious

Hope?

Hidden cycle?

%

REGULATIONSComplexity

UNCERTAINTY

COSTS

Scarce lending

Funding gap

Market Constraints

Eurozone Crisis

Risk aversion

CASH

Constraints favor integrated players

What do Developers

compete for ?

The Gap

What’s aboutTenants’

considerations ?

Strategic resource

Accessibility

LocationTotaloccupancy

cost

Functionality

Organization

Employee wellbeing

Profit levers

Cost structure

Services

WasteCarbon

emissionWater use

Flexibility Risks Operatingefficiency

Performances

Listen to the Occupier

and don’t decideon its behalf!

The Gap

Building Owner

Occupiers - Employees

“Disconnected”

“Split incentives”

Fund Manager

Developer

Property Manager

Tenant

“Vertical integration:

tenant satisfaction”

REAL ESTATE MANAGER

Corporate Administration

Fund Management

Estate Management

Development (D & C)

INTEGRATION

Customer-centric strategies

The Gap

LARGEINVESTORS

CORPORATETENANTS

Fund Structuring& Governance

Development Partnership

Investment Partnership

Lease Partnership

Service Partnership

REAL ESTATE MANAGER

INTEGRATION

Development (D & C)

Corporate Administration

Fund Management

Estate Management

Customer-centric strategies

Strategy ImplementationCUSTOMER INTIMACY

BEST TOTAL SOLUTION

OPERATIONAL EXCELLENCE

PRODUCT LEADERSHIP

BEST TOTAL PRODUCT BEST TOTAL COST

Minimal performance level in the industry

Performance level of market leaders

Performance level of the proposed strategy

CUSTOMER INTIMACY

OPERATIONAL EXCELLENCE

PRODUCTLEADERSHIP

Tailored offering

Best Total Solution

Adequate Building & Services

Affordable Price

Comparative Business Plans

Net Surface : 42,000 m² Development Budget : 295 M€ Annual Rent : 600 €/m² Adaptation & Leasing Cost : 10 M€ Target Exit Yield: 6.25 % Exit Time (includes 4 years development): 7 years

To Be Leased After Development

Leased Prior Development

Loan / EquityLoan InterestEquity RateTotal Project BudgetLoan InterestsCommitted EquityLoss of Rent (months)

40 / 60 4.25 %12.00 %305 M€ 20 M€185 M€

12

60 / 40 3.75 %12.00 %295 M€ 34 M€114 M€

0

+ Risks -

PERFORMANCES To Be Leased After Development

Leased Prior Development

Net Profit

IRR Unlevered (ROI BT)

IRR Levered (ROEBT)

Equity Multiple

110 M€10.21 %10.27 %

1.60

136 M€13.24 %20.46 %

2.16

110 M€

1 765432

136 M€

Cash FlowTo be

Leased

Cash FlowPre-Leased

Comparative Cash Flows (Equity)

+ 150

+ 100

+ 50

0

- 50

- 100

- 150

- 200

OPTION 1To be Leased

OPTION 2Pre-Leased

or +

2 projects

Double gainLess risk

Profit+110 M€

Profit+86 M€

Profit+136 M€

Equity71 M€

Equity114 M€

Equity185 M€

Best

option?

Tenant

Tenant

Tenant

Conclusion

Thank You

Next is the Commencement Day.

Now, it’s time to start paddling

to catch andride the next wave!