1 / 16

ERES 2009 Conference Stockholm, 24-27 June 2009

SIZE, PERFORMANCE AND FINANCIAL CONDITIONS FOR SPANISH REAL ESTATE FIRMS, 2004-2007 Blanca Sanchez-Robles. Universidad de Cantabria and Gladius Real Estate. ERES 2009 Conference Stockholm, 24-27 June 2009. Outline of the presentation. Introduction and Motivation

noleta
Download Presentation

ERES 2009 Conference Stockholm, 24-27 June 2009

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. SIZE, PERFORMANCE AND FINANCIAL CONDITIONS FOR SPANISH REAL ESTATE FIRMS, 2004-2007Blanca Sanchez-Robles. Universidad de Cantabria and Gladius Real Estate ERES 2009 Conference Stockholm, 24-27 June 2009

  2. Outline of the presentation • Introduction and Motivation • Some features of the Spanish real estate firms and industry • Size and performance • Empirical results • Concluding remarks

  3. 1. Introduction and motivation Boom over the years 1995-2006 Real estate: key industry for the Spanish economy. • price increase 85-07: 295% • (biggest in Europe) • Increases in capacity of supply because: • New entrants have come • Incumbents have raised production Shap drop of demand in 2007-2008 • Overcapacity is transitory or • Structural?

  4. Introduction and motivation Overcapacity is going to last for a long period • Correction is needed • Bankruptcies: 43% of total • in Q1-Q3 08 • How should survivors adjust? • Mixed approach: Empirical plus • qualitative assessment of the sector

  5. 2. Some features of the Spanish real estate firm • Young. 47% of real estate firms existing in 2005 were created after 1997 (8 years!!) • Small. Typical: below 100 mill € of annual income • Owned and managed by a family • Large returns. Roes of 30% • Large leverage: frequently around 90% • Lack of managerial culture • Lack of strategic planning

  6. Some features of the industry • Small entry barriers. • High exit barriers due to • low liquidity • Managers do not know to operate in other sectors for lack of human capital • Buyers are becoming more demanding and sophisticated: prices are falling • Banks are becoming tougher In their investment analysis • How to be more efficient? • Competition is getting • very fierce • Many firms must compete • in costs: efficiency is crucial • Is size a possible way • in this direction?

  7. 3. Size and performance • Learning curve • Dilution of fixed costs • Possibility of accessing better managers and advisors • Virtuous circle: networking-sales (Chiang et al., 2008) • Brand? (Benjamin et al., 2006) • R+D? (Cheah et al., 2007) Average costs • We are not arguing that • there are increasing • returns to scale Average costs • The issue can be just lack • of optimal dimension q

  8. 4. Empirical results • Sample: • 19 firms • 2004-2007 • Specification: link size and performance • Performance: ROE, margin • Size: income,assets • Control variables: interest rate, growth in transactions, growth in prices

  9. Empirical data Pretty stable!!

  10. Main Results Larger Roes are associated with higher level of sales

  11. Main Results Larger Roes are associated with larger balance sheets Impact of financial leverage on Roe is positive

  12. Main Results What is underlying this connection? Dupont decomposition • Small in developers • Double effect: • Positive: increases Roe • Negative: harms net margin • But this effect is disguised • when interest rates are low

  13. Main Results Plausible to think that size increases efficiency through margin Financial leverage has a negative impact on margin

  14. Main Results Larger firms are more leveraged: more risk in absolute and relative terms

  15. 5. Concluding remarks • margin increases • size reduces • financial • leverage increases • Risk of insolvency increases

  16. 5. Concluding remarks • It is indeed reasonable to think that many Spanish real estate firms are below their optimal capacity in terms of efficiency • Size also favours larger level of leverage, this strategy is very dangerous with increasing interest rates. • Size increases efficiency • but also entails risks

More Related