Current Trends in Management of Real Estate Investments - ICME
Current Trends in Management of Real Estate Investments - ICME
Current Trends in Management of Real Estate Investments - ICME
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Abstract<br />
<strong>Current</strong> <strong>Trends</strong> <strong>in</strong> <strong>Management</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
<strong>Investments</strong><br />
<strong>Management</strong> implications for the new role <strong>of</strong> the asset class real estate –<br />
results based on best-<strong>in</strong>-class comparison <strong>of</strong> lead<strong>in</strong>g real estate <strong>in</strong>vestment<br />
manager<br />
Munich, Septembre 2007<br />
www.icme.com
<strong>Management</strong> Summary<br />
Changed market conditions lead to new challenges for <strong>Real</strong> <strong>Estate</strong> Investment <strong>Management</strong><br />
<strong>Trends</strong> <strong>in</strong> <strong>Real</strong> <strong>Estate</strong> Investment<br />
<strong>Management</strong><br />
Reactions <strong>of</strong> best-<strong>in</strong>-class partners<br />
• Increas<strong>in</strong>g relevance <strong>of</strong> real estate as a<br />
core asset class<br />
• Shift from direct <strong>in</strong>vestments to <strong>in</strong>direct<br />
vehicles<br />
• New challenges for product development<br />
by <strong>in</strong>creas<strong>in</strong>g demand and necessary<br />
differentiation<br />
• Ris<strong>in</strong>g complexity by an <strong>in</strong>creas<strong>in</strong>g number<br />
and typology <strong>of</strong> vehicles<br />
• Central role <strong>of</strong> the fund/portfolio manager<br />
with <strong>in</strong>creas<strong>in</strong>g orientation on performance<br />
and personal top down control<br />
• Increas<strong>in</strong>g importance <strong>of</strong> f<strong>in</strong>ancial<br />
eng<strong>in</strong>eer<strong>in</strong>g <strong>in</strong> addition to fiscal and legal<br />
issues<br />
• Range <strong>of</strong> products and services<br />
– Pr<strong>of</strong>essional approaches <strong>in</strong> product<br />
development processes, synchronized<br />
with plann<strong>in</strong>g process<br />
– Integration <strong>of</strong> cross-functional<br />
departments<br />
• Day-to-day management<br />
– Increas<strong>in</strong>g application <strong>of</strong> sophisticated<br />
and pr<strong>of</strong>essional approaches <strong>in</strong> real<br />
estate <strong>in</strong>vestment management<br />
– Implementation <strong>of</strong> performance<br />
orientation and top down control by<br />
the fund-/portfolio manager<br />
– Core functions <strong>of</strong> REIM encompass<br />
ma<strong>in</strong>ly strategic issues. Operational<br />
functions at property level are<br />
<strong>in</strong>creas<strong>in</strong>gly outsourced<br />
2 <strong>ICME</strong> - <strong>Current</strong> <strong>Trends</strong> <strong>in</strong> <strong>Management</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> <strong>Investments</strong>
<strong>Trends</strong> and developments <strong>in</strong> <strong>Real</strong> <strong>Estate</strong> Investment <strong>Management</strong> (REIM)<br />
The shift from direct <strong>in</strong>vestment towards <strong>in</strong>direct vehicles has numerous implications for<br />
<strong>in</strong>vestment managers, especially concern<strong>in</strong>g approaches <strong>in</strong> product development and cont<strong>in</strong>uous<br />
product management<br />
Development <strong>of</strong> real estate <strong>in</strong>vestments<br />
Challenges for managers<br />
90%<br />
Listed real estate<br />
companies<br />
• Growth <strong>of</strong> <strong>in</strong>direct real estate <strong>in</strong>vestments<br />
• Investor competition and shortage <strong>of</strong><br />
properties<br />
Portfolio development <strong>in</strong> %<br />
80%<br />
70%<br />
60%<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
85%<br />
15%<br />
+55%<br />
30%<br />
70%<br />
ca.<br />
6 bn. €<br />
ca. 150 bn. €<br />
• Additional assessment criteria through<br />
<strong>in</strong>creas<strong>in</strong>g number and variants <strong>of</strong> <strong>in</strong>direct<br />
<strong>in</strong>vestments<br />
• Grow<strong>in</strong>g requirements by auditors,<br />
formalities and legislation<br />
• Increased globalization <strong>of</strong> <strong>in</strong>vestment<br />
markets requires <strong>in</strong>ternational management<br />
know-how<br />
• Higher speed <strong>of</strong> transactions <strong>in</strong>stead <strong>of</strong> „buy<br />
and hold“<br />
• Manager rat<strong>in</strong>g is grow<strong>in</strong>g <strong>in</strong> importance:<br />
• Leadership quality<br />
• Process quality<br />
0%<br />
Today Trend 2012<br />
Direct <strong>in</strong>vestment Indirect <strong>in</strong>vestment<br />
2006 2016<br />
• Information quality<br />
• Success and quality <strong>of</strong> management<br />
Source: I.C.M.E. survey regard<strong>in</strong>g <strong>in</strong>stitutional real estate <strong>in</strong>vestors 2006/2007–130 <strong>in</strong>ternational <strong>in</strong>vestors were<br />
<strong>in</strong>terviewed<br />
3 <strong>ICME</strong> - <strong>Current</strong> <strong>Trends</strong> <strong>in</strong> <strong>Management</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> <strong>Investments</strong>
<strong>Trends</strong> and developments <strong>in</strong> <strong>Real</strong> <strong>Estate</strong> Investment <strong>Management</strong> (REIM)<br />
Ris<strong>in</strong>g complexity through <strong>in</strong>creas<strong>in</strong>g number <strong>of</strong> vehicles requires pr<strong>of</strong>essional approaches <strong>in</strong><br />
<strong>in</strong>vestment management analog to <strong>in</strong>vestments <strong>in</strong> securities. The market <strong>in</strong>dicates a trend towards<br />
higher quantity <strong>of</strong> products with decreas<strong>in</strong>g target volumes<br />
Number <strong>of</strong> managed products<br />
30%<br />
Target volume <strong>of</strong> products<br />
30%<br />
Distribution <strong>of</strong> percentage pf managers <strong>in</strong> %<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
10 %<br />
m<strong>in</strong>.<br />
1 vehicle<br />
27%<br />
16 %<br />
24%<br />
Ø<br />
13 vehicles<br />
22%<br />
1 1 to 5 5 to 10 10 to 20 >20<br />
Source: I.C.M.E. research 2007; I.C.M.E. – Best-<strong>in</strong>-Class REIM-Survey 2007<br />
4 <strong>ICME</strong> - <strong>Current</strong> <strong>Trends</strong> <strong>in</strong> <strong>Management</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> <strong>Investments</strong><br />
max.<br />
100 vehicles<br />
Almost 50% <strong>of</strong> <strong>in</strong>vestment companies have more<br />
than 10 real estate vehicles <strong>in</strong> their product portfolio<br />
with upward trend<br />
Distribution <strong>of</strong> target allocation <strong>of</strong> products <strong>in</strong> %<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
24%<br />
27%<br />
23%<br />
21%<br />
3% 3%<br />
< 0,5 bn. € 1 bn. € 3 bn. € 5 bn. € 10 bn. € 11 bn. €<br />
74% <strong>of</strong> the products possess a target<br />
allocation below € 3 bn.
<strong>Management</strong> implications and characteristics <strong>of</strong> REIM<br />
Reorientation <strong>of</strong> classic <strong>in</strong>vestment management functions to heightened consideration <strong>of</strong> corporate<br />
strategic and general management issues<br />
Shift <strong>in</strong> REIM task pr<strong>of</strong>iles<br />
Essential management implications<br />
Legal framework<br />
<strong>Management</strong><br />
structure<br />
Risk budgets<br />
Bus<strong>in</strong>ess objectives<br />
Requirements <strong>of</strong><br />
Investors<br />
Strategic asset allocation<br />
Selection <strong>of</strong> managers<br />
IM PM AM PrM<br />
Tactical asset allocation<br />
Investment<br />
controll<strong>in</strong>g<br />
Liabilities<br />
Portfolio<br />
structure<br />
Investment<br />
• Changes <strong>in</strong> strategic focus, driven by pr<strong>of</strong>itability<br />
objectives, by customer demands and <strong>in</strong>ternal core<br />
competencies. Core elements <strong>of</strong> a successful strategy are<br />
• Clearly def<strong>in</strong>ed and communicated bus<strong>in</strong>ess strategy<br />
• Cont<strong>in</strong>uous screen<strong>in</strong>g <strong>of</strong> external market environment<br />
• Knowledge <strong>of</strong> <strong>in</strong>dividual <strong>in</strong>vestor requirements<br />
• def<strong>in</strong>ite strategic plann<strong>in</strong>g process implemented<br />
throughout the entire organization<br />
• Operational excellence<br />
• Investment process has to be considered with<strong>in</strong> the<br />
entire organizational framework<br />
• The organizational framework provides essential<br />
success factors for the function<strong>in</strong>g <strong>of</strong> the <strong>in</strong>vestment<br />
process<br />
• Thus functions like risk management, bus<strong>in</strong>ess<br />
development, controll<strong>in</strong>g etc. as support functions<br />
outside <strong>of</strong> the <strong>in</strong>vestment process ga<strong>in</strong> <strong>in</strong>creas<strong>in</strong>g<br />
importance<br />
• Redef<strong>in</strong>ition <strong>of</strong> the term “regionalism” and respective<br />
different models arise for operative implementation<br />
• Alternatives for realization with potential external<br />
service providers need to be assessed<br />
5 <strong>ICME</strong> - <strong>Current</strong> <strong>Trends</strong> <strong>in</strong> <strong>Management</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> <strong>Investments</strong>
<strong>Management</strong> implications and characteristics <strong>of</strong> REIM<br />
Topics and trends <strong>in</strong> the management <strong>of</strong> real estate <strong>in</strong>vestments<br />
Bus<strong>in</strong>ess Models<br />
and<br />
Value Cha<strong>in</strong><br />
• Bus<strong>in</strong>ess Model and Value Cha<strong>in</strong><br />
Bus<strong>in</strong>ess model <strong>in</strong> times <strong>of</strong> <strong>in</strong>creas<strong>in</strong>g<br />
complexity <strong>in</strong> REIM caused by products,<br />
contractors and <strong>in</strong>ternationalization<br />
• Operational Excellence<br />
<strong>Real</strong>ization <strong>of</strong> absolute return through<br />
pr<strong>of</strong>essional management <strong>of</strong> the entire<br />
<strong>in</strong>vestment process and pursuit <strong>of</strong><br />
excellence on each organizational level<br />
Risk<br />
<strong>Management</strong><br />
Best-<strong>in</strong>-Class<br />
REIM<br />
Operational<br />
Excellence<br />
• Innovation <strong>Management</strong> and Bus<strong>in</strong>ess<br />
Development<br />
Implementation <strong>of</strong> def<strong>in</strong>ed functions and<br />
procedures to <strong>in</strong>vent new products,<br />
concepts and vehicles to <strong>in</strong>crease<br />
adaptability to market changes<br />
Innovation<br />
<strong>Management</strong><br />
and Bus<strong>in</strong>ess<br />
Development<br />
• Risk <strong>Management</strong><br />
Consideration <strong>of</strong> risk components at<br />
portfolio level and with<strong>in</strong> <strong>in</strong>vestment<br />
operations<br />
6 <strong>ICME</strong> - <strong>Current</strong> <strong>Trends</strong> <strong>in</strong> <strong>Management</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> <strong>Investments</strong>
<strong>Management</strong> implications and characteristics <strong>of</strong> REIM<br />
Best-<strong>in</strong>-Class<br />
REIM<br />
Trend towards <strong>in</strong>direct <strong>in</strong>vestment and growth <strong>of</strong> real estate <strong>in</strong> portfolios <strong>in</strong>stitutional <strong>of</strong><br />
<strong>in</strong>vestors lead to <strong>in</strong>creas<strong>in</strong>g pr<strong>of</strong>iciency <strong>of</strong> the REIM-<strong>in</strong>dustry<br />
Standardized def<strong>in</strong>ition <strong>of</strong> the <strong>in</strong>vestment process across<br />
various asset classes<br />
Development <strong>of</strong> portfolio management<br />
approach <strong>in</strong> asset class real estate<br />
Strategic<br />
asset allocation<br />
Determ<strong>in</strong>ation <strong>of</strong> percentages<br />
<strong>of</strong> asset categories<br />
Tactic<br />
asset allocato<strong>in</strong><br />
Rapid reaction to changes<br />
<strong>in</strong> the market<br />
• Increas<strong>in</strong>g complexity and importance <strong>of</strong><br />
real estate portfolio management requires<br />
<strong>in</strong>tegration on all stages <strong>of</strong> the<br />
<strong>in</strong>vestment process<br />
1<br />
2<br />
Shares<br />
Bonds<br />
Investment<br />
management<br />
Investment<br />
management<br />
Portfolio<br />
management<br />
Portfolio<br />
management<br />
Transfer and<br />
process<strong>in</strong>g<br />
Transfer and<br />
process<strong>in</strong>g<br />
Controll<strong>in</strong>g<br />
Controll<strong>in</strong>g<br />
• Therefore, activities at <strong>in</strong>vestment- and<br />
portfolio (fund) management level are<br />
ga<strong>in</strong><strong>in</strong>g importance with<strong>in</strong> the real estate<br />
<strong>in</strong>vestment <strong>in</strong>dustry<br />
3<br />
<strong>Real</strong> estate<br />
Investment<br />
management<br />
Portfolio<br />
management<br />
Asset<br />
management<br />
Controll<strong>in</strong>g<br />
• Special attention needs to be drawn to<br />
tax/fiscal as well as f<strong>in</strong>ancial aspects for<br />
<strong>in</strong>vestment vehicles (wrappers)<br />
Project<br />
development<br />
Property<br />
management<br />
‣ Reorientation <strong>of</strong><br />
<strong>in</strong>vestment managers by<br />
pr<strong>of</strong>essionaliz<strong>in</strong>g the real<br />
estate <strong>in</strong>vestment process<br />
‣ Traditional focus and<br />
functions <strong>of</strong> real estate<br />
<strong>in</strong>vestment managers so<br />
far<br />
7 <strong>ICME</strong> - <strong>Current</strong> <strong>Trends</strong> <strong>in</strong> <strong>Management</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> <strong>Investments</strong>
<strong>Management</strong> implications and characteristics <strong>of</strong> REIM<br />
Best-<strong>in</strong>-Class<br />
REIM<br />
Design <strong>of</strong> products <strong>in</strong> accordance to market, <strong>in</strong>vestors and sales force, <strong>in</strong> l<strong>in</strong>e with the<br />
def<strong>in</strong>ed bus<strong>in</strong>ess strategy<br />
Innovation management with<strong>in</strong> REIM<br />
Bus<strong>in</strong>ess Strategy<br />
• Structure <strong>of</strong> BD department accord<strong>in</strong>g to product, client<br />
and sales requirements<br />
Innovation <strong>Management</strong><br />
Bus<strong>in</strong>ess Development<br />
Result<br />
Product<br />
Sales<br />
Information Flow<br />
• Different models are possible and have to be customized<br />
accord<strong>in</strong>g to background on an <strong>in</strong>dividual basis<br />
• Dependencies are given by product portfolio, number <strong>of</strong><br />
employees, and competencies <strong>of</strong> employees<br />
• Design <strong>of</strong> a determ<strong>in</strong>ed structure and def<strong>in</strong>ition <strong>of</strong><br />
processes <strong>in</strong> order to<br />
• prioritize product ideas/topics by an <strong>in</strong>dependent<br />
unit<br />
• <strong>in</strong>tegrate all relevant <strong>in</strong>ternal units<br />
Client<br />
• collect <strong>in</strong>formation about markets, <strong>in</strong>vestor, sales as<br />
well as aggregate <strong>in</strong>formation <strong>of</strong> <strong>in</strong>ternal crossfunctional<br />
units<br />
Market and Competition<br />
• Central unit with <strong>in</strong>itiat<strong>in</strong>g role for ongo<strong>in</strong>g <strong>in</strong>novation<br />
management concern<strong>in</strong>g strategic issues as well as<br />
operational fields <strong>of</strong> action with<strong>in</strong> REIM<br />
8 <strong>ICME</strong> - <strong>Current</strong> <strong>Trends</strong> <strong>in</strong> <strong>Management</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> <strong>Investments</strong>
Excellence by Experience<br />
München •Dortmund •Frankfurt •Milano •Paris •Zürich<br />
www.icme.com
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