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EMBA 1 DW 2013 Final Individual Project By Yilmaz KARAUC April, 2013. New Trends & Winning Corporate Strategies in Commercial Real Estate. $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.

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  1. EMBA 1DW2013 Final Individual Project By Yilmaz KARAUC April, 2013 New Trends & Winning Corporate Strategies in Commercial Real Estate • $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

  2. Real Estate Key Issues Adequacy Management Finance

  3. TAXES Real Estate is about Commissions ALEAS Claims Fees Technical Standards FINANCE Interests Long Term Project Immovable Time PEOPLE Made in Local Public Authorities Dust & Muds LAND, LOCATION, ACCESIBILITY & BUILDABILITY

  4. Debt Funds Real Estate Value Chain Ownership & Development Finance (Equity / Debt) Property Sale, Lease & Mgmt Construction Tenant Use Institutional Investors Delegated Owner Project Manager Equity Developers Indi. & Small Investors Asset Managers Designers & Consultants Commercial Companies Real Estate Inv. Funds Trade Contractors Property Managers Industrial Firms Home Builders Real Estate Brokers Commercial Banks Residential (multi-family) Debt Mortgage Brokers Residential (single-family) Secondary Market Investment Banks CMBS RMBS

  5. Revenue Flow Institutional Investors Real Estate Investment Fund Real Estate Fund Manager Equity > < Equity Fees + Yield + Expenses > Indi. & Small Investors < Yield + Capital + Gain Capital + Gain + Bonus > Fee + Yield > Expenses > Interests > Other Investors Capital + Gain > Real Estate Broker Equity > Commission > Fair Value > < Asset SV Rent Equity Fair Value Banks Tenants Loans + Insurance > < Rent + Charges Loans Charges < Fees + Expenses Insurers < Principal + Interest < Remaining Capital < Works Price < Fees < Fees Expenses > Fees > Construction Professionals Asset Manager Property Manager

  6. Sector Cycle Issue 2007 2020 ? 2013 ? Recovery of financials Local bank markets Secondary market re-emerge Speculative overbuilding Overleveraged assets Economic downturn Bankruptcies Non-performing loans Reluctance of financials Lack of domestic credit Lack of fresh capital Declining values Increasing values Financial stagnation Distress Recognition of crisis Support by Regulatory Bodies Marking assets to market

  7. % EU Market Total Returns Face Value vs. Economic Value? Pious Hope? Hidden cycle?

  8. Market Constraints Constraints favor integrated players UNCERTAINTY Scarce lending CASH Complexity REGULATIONS Risk aversion Funding gap COSTS Eurozone Crisis

  9. The Gap ? What do Developers compete for

  10. The Gap ? What’s about Tenants’ considerations Listen to the Occupier and don’t decide on its behalf! Location Total occupancy cost Organization Cost structure Strategic resource Services Accessibility Operating efficiency Performances Flexibility Profit levers Risks Functionality Waste Carbon emission Water use Employee wellbeing

  11. The Gap Customer-centric strategies Building Owner Corporate Administration INTEGRATION Fund Manager “Disconnected” “Split incentives” Developer Fund Management “Vertical integration: tenant satisfaction” REAL ESTATE MANAGER Property Manager Estate Management Tenant Development (D & C) Occupiers - Employees

  12. Customer-centric strategies Fund Structuring & Governance LARGE INVESTORS Investment Partnership Corporate Administration INTEGRATION Fund Management Development Partnership REAL ESTATE MANAGER CORPORATE TENANTS Estate Management Lease Partnership Development (D & C) Service Partnership

  13. Strategy Implementation CUSTOMER INTIMACY BEST TOTAL SOLUTION Performance level of the proposed strategy Performance level of market leaders Minimal performance level in the industry PRODUCT LEADERSHIP OPERATIONAL EXCELLENCE BEST TOTAL PRODUCT BEST TOTAL COST

  14. Tailored offering CUSTOMER INTIMACY PRODUCT LEADERSHIP OPERATIONAL EXCELLENCE Best Total Solution Adequate Building & Services Affordable Price

  15. 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 + Risks -

  16. Comparative Cash Flows (Equity) + 150 136 M€ + 100 110 M€ + 50 0 - 50 - 100 - 150 Cash Flow Pre-Leased - 200 Cash Flow To be Leased 3 4 7 1 2 5 6

  17. Best option? Conclusion OPTION 1 To be Leased OPTION 2 Pre-Leased Equity 185 M€ Tenant Equity 71 M€ Equity 114 M€ Tenant 2 projects Double gain or + Tenant Less risk Profit +110 M€ Profit +86 M€ Profit +136 M€

  18. Next is the Commencement Day. Thank You Now, it’s time to start paddling to catch and ride the next wave!

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