The two main links in the value chain and how to take advantage of them
Many of our clients have extensive expertise in other areas and feel fear or uncertainty when they begin to enter the real estate business. This is normal; we cannot be experts in everything.
The fact of not knowing the world of Real Estate in detail does not mean that business opportunities should be missed.
At Prospered we work a lot with these types of clients or companies, which have an operation in another line of business and, either as owners or investors, want to participate in a real estate project that will bring them wealth and prosperity.
In this article we present a summary of the explanation that we give to our clients and allies who are just starting their Real Estate operation.
REAL ESTATE BUSINESS VALUE GENERATION CHAIN
As we see it, there are two main types of assets that act as players in the Real Estate business:
Property / Property Portfolio
Without these two elements it is not possible to develop a real estate business, so both are equally important.
Both generate value at different times, from the definition of the investment and development strategy to the operation and divestment of the project.
Business capital is especially important during the process in which the investment strategy is defined and the opportunities that meet the minimum requirements are identified.
DEFINITION OF INVESTMENT STRATEGY
To begin the value generation cycle, the first thing the investment council must do is determine the type of projects in which they would like to participate, as well as the market segment of their interest, the minimum sales values and the maximum costs. so that the business is profitable
Either through a brokerage service or with an internal team, the next step is to look for investment opportunities that meet the minimum requirements established in the first point.
In the case of investors, this process is also known as Land Finding, in which land is sought with the ideal conditions to develop a specific project.
For landowners, as they already have the land, the identification of opportunities consists of analysing the area and determining the highest and best use of the property through a market study and financial structuring of the business.
ACQUISITION OF SITES
Once the best business opportunities have been identified, it is time for the investor and the owner to negotiate on the land on which it is intended to develop.
There are multiple ways that a landowner can participate in a business. Between them:
- Sale of the land, with a single payment for the total value of the property agreed by both parties.
- Percentage of sales, determining a minimum expected value; this option increases the risk but can also be more profitable if the business allows it.
- Shareholding, determining the percentage of capital that the land represents in the business.
- By exchange, receiving a set amount of saleable square meters upon completion of construction.
When you have properties, it is time to make decisions about how to manage them.
Some of the points to take into account in the investment decision-making process are:
- Specific objectives of the organization
- Business seasonality
- Cash Flow
- Socio-political context
- Economic context
And above all, the answer to a question: Will they continue to increase in value in the future or is it time to develop, rent or sell them outright?
Property is the second important link in the real estate business chain. Without it, it would not be possible to carry out the project since, literally, it is the basis on which the construction and subsequent generation of income from sale and rent will be developed.
CONCEPTUALIZATION AND STRUCTURING OF THE PROJECT
Once the property to be developed has been identified, it is time to conceptualize a project that meets the financial expectations of the business and meets a specific and real market need.
For this, an analysis of the unsatisfied demand in the area must be carried out, and a product that meets these needs must be defined. When a profitable product mix has already been found, the next step is to do a financial analysis to determine factors such as:
- Residual value of the land
- Construction costs (Hard Costs)
- Administrative and sales costs (Soft Costs)
- Uses and sources of capital
- Capital structure
- Percentage or amount of financing required
The project capitalization process includes the search for investors who seek to participate in real estate businesses like blue world city islamabad to earn returns.
This process is known as Road Show, and it is necessary to have a solid business model that gives certainty to those interested that it is a good investment opportunity.
Likewise, during the capitalization of the project, it is commonly required to request bridge loans or other types of financing from banking institutions . For this, a series of requirements must be met.
Lastly, project capitalization commonly requires pre-sales or advance sales to take place. These presales fulfill multiple functions in addition to providing capital to the project , since they are considered another certainty factor for both investors and banking institutions.
When it comes to commercial projects, one of the most important points is to develop a business mix that complement each other and that generate traffic and returns to the project .
The development of this mix is known as Rent Roll , and is accompanied by a search and negotiation process with the main commercial players such as anchor stores: supermarkets, department stores, cinemas, among others.
Project development includes the entire construction process , ensuring that business objectives are met, including:
- Construction times
- Maximum costs
- Minimum expected quality
The operation of the project begins with its opening, and covers the entire time that the building is in use . During this period, which can last for many years, it is necessary for the owners to be aware of the operation, either by hiring a company or by appointing an operating committee that is in charge of running the day-to-day business.
It should be noted that this process only applies to heritage projects, that is, those that are not sold to third parties but remain as part of the assets of the company or the owner who developed the business.
After a specified period of operation, the property is likely to generate more resources by selling it to a third party who manages its operation. This will bring in new resources that can be used to identify new investment opportunities or to develop another property found in the portfolio.
Thus, the value generation chain is closed and the investment council begins the cycle again from the first step.
Regardless of the stage of your operation, at Tajarat properties we can help you. We have a variety of services that adapt to your needs, from an analysis of unsatisfied demand (market study) to a subscription service in which we accompany you throughout the development of your project. If you would like to receive more information or You want to schedule a call with us.
Real estate panorama: behavior of the office business as of 2Q-2020
The first quarter of 2020 left everyone with a feeling of uncertainty about the future of the real estate business in the country. And with good reason, since there was a significant decrease in office occupancy levels nationwide.
The good news is that the second quarter of the year gives us a more optimistic outlook for the coming months. s
Here is a summary of this study. If you want to download the full report totally free, you can do it here.
PRICE BEHAVIOR AND OFFICE OCCUPATION IN THE MAIN METROPOLITAN AREAS OF THE COUNTRY
The Monterrey metropolitan area observed a rapid recovery in the occupancy of its offices in the second quarter of the year. By July 2020, occupancy was only two percentage points below Q4 2019.
On the other hand, average rental prices did have a significant decrease, although the recovery begins to be seen during the second quarter of 2020.
Similar to Monterrey, occupancy in the Guadalajara metropolitan area is almost at the same level as in Q4 2019, with three percentage points less in the second quarter of 2020.
Rental prices have had a slower recovery; Average prices are observed below $ 200 / m 2.
The metropolitan area of Mexico City had a different behavior from Monterrey and Guadalajara, since in this city the occupation suffered a greater decrease. As of 2Q 2020, occupancy was 10 percentage points below the indicators for the fourth quarter of 2019.
On the other hand, rental prices are showing a faster recovery compared to the other cities, matching the rental prices of the third quarter of 2019.