It’s all about the farming – asset management for real estate

Multi Value in economic perspectives
All the players in the world of Real Estate have very different perspectives regarding buildings as assets. However, they all depend on each other to create lasting value:

  • (Re)developers looking for opportunities to make a quick profit
  • Capital looking to recoup their long term investments
  • Lenders looking for temporary facilities to house their staff and processes
  • Companies looking for physical means to operate their long term business
  • Society looking for sustainable public space

Let’s have a brief look and see where Asset Management is involved.

(Re)developers looking for opportunities to make a quick profit
Real Estate developers are always looking for ways to make money fast by creating or redeveloping Real Estate and selling it for more than the original cost. This is the most risky phase in the lifetime of a building. Capital owners generally leave this phase to the developers, although it is a crucial phase in transforming a building into a valuable asset in the long term. Nor is investing in future value of interest to someone who makes his money during the first few years – or even less.

It’s like building farms without considering the farmer’s needs.

 

Capital Owners looking to recoup their long term investments
From the investor’s perspective, the real estate market regards property as a financial investment product which will achieve Return on Investment. It is also important to eliminate risks which negatively influence this return. As in the case of Portfolio Management, actions are driven by maximising return of capital, like acquisition, exploitation and disposition of real estate, with no serious regard for the users of these properties.

It’s like renting out farms without really bothering their use by the farmers – although the productivity of the farmers has a vital impact on their ability to keep paying the rent.

 

Organisations looking for facilities to house their staff and processes
In terms of users, a building is intended to accommodate an organisation’s employees, clients and business processes. Nowadays, however, lenders have an ambiguous relationship with buildings: the shorter their balance, the better their Return on Investment. Furthermore, the greater the volatility of their agile organisations, the less these organisations take responsibility for the built environment they use. Moreover, the mediocre commodity buildings they consequently use will not really feel like an appropriately fitted tailor-made suit.
The Dutch Standard NEN8021 and RHDHV Housing Navigator outline a method for measuring the performance of non-residential property, to be compared by a set of requirements formulated by its users. It justifies choices in order to achieve critical performance. A tenant/user is thus able to align the correct volume of demand and supply in the present and medium term – without acting as an owner of these commodities.

It’s like farming as a temporary leaseholder without being able to influence the performance of the utilities on the farm.

 

Companies searching for physical means to process their core business
In terms of user-owners, the importance of corporate or public service buildings is paramount. They need to run their core processes in order to produce value. From this perspective, asset owners will value their stakeholders differently, formulated in the way that ISO55000 does. This is all about how capital goods can contribute to the competitive advantage of the business and reduce the risks of the company.
In Real Estate, this is the portfolio management of user-owners. They constantly focus on the perfect fit between core process and built assets, the optimum use of their properties for the current and future housing needs of the organisation. In short: it’s all about Tailored Asset Optimisation.
As in the case of transformation and rezoning, greening energy efficiency or demolition & reconstruction – industrial buildings like factories, chemical plants and laboratories, or public service buildings like hospitals, theatres or swimming pools are dedicated instruments. They are all tailored to each core production.
The balance of choices that affects the best performance, the ultimate reduction of risk and the optimised costs to the asset owner indicates direction for value by dedicated maintenance policy and performance control, supported by clear development of the promising triangular relationship between asset owner, asset manager and service provider.
It’s like a farmer who does not just make money by renting out or selling his farm, but who aligns the functionality of his farm as a means to achieve his goals in order to maximise the yearly harvest.

 

Society looking for sustainable public space
We need to realise that built assets are always part of their environment and therefore impact on society. That implies the obligation of any player in the built asset arena, including Real Estate, to act in a sustainable way. Buildings are more than just financial assets or a physical means for production. As long as developers, investors, tenants, owners and asset managers do not fulfill their corporate social responsibility with regard to how they manage or run their assets, they will be subjected to rules or public pressure. On the other hand, well fitted properties create value and branding.
It’s like a farmers’ neighbourhood which values the farmer but is concerned about the quality of his wastewater or the scenery improved by his well-maintained sheds.

 

Multi-Value
The interesting perspectives outlined above indicate that most of the players in the Real Estate Arena need each other to do business. This creates tension. Knowledge of each other’s perspectives, purpose, interests and basic repertoire helps achieve optimal choices. The non-parallel interests need tailored asset optimisation and a legal framework to secure these interests. Managing physical assets like Real Estate is not an easy task – but it pays off.
It’s like competent experienced farming: Enhancing the harvest beyond the value of the farmhouse.

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