Divesting Corporate Real Estate. How to Overcome User and Market Restrictions
||Pfnuer, Andreas and Stefan Armonat
||Divesting Corporate Real Estate. How to Overcome User and Market Restrictions
||Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society
||The ratio of freehold corporate property among German companies was on average at 70 % in the year 2000. This represents a level of ownership being more than twice as high as with their international competitors. Generally, not only German but all continental European companies exhibit a ratio of freehold property that exceeds international standards. In this environment, worthwhile disinvestments of corporate real estate become a driving force of companies' success. However, as long as the majority of corporate property is managed as a negligible resource within companies, assets are prone to underperform. Low yields and risks due to intransparency discourage potential capital investors from acquiring company assets. Consequently, properties linger with the companies, cause high costs, and lock in capital. At the same time, real estate investors continue searching desperately for profitable real estate investment opportunities. As an unfavourable result, capital demand for real estate does not meet supply; the ratio of freehold property remains high. The success of effective disinvestment strategies depends on how to crack this vicious circle. The first contribution of this article is to explain the discrepancies as an organizational phenomenon resulting in market inefficiencies. Secondly, it sheds light on an optimal strategy for structuring corporate real estate holdings in order to divest property portfolios efficiently. A late-breaking empirical study of the authors in cooperation with Colliers International and CoreNet Global Germany demonstrates the effects and shortfalls in the corporate environment. Companies have exerted themselves increasingly for divesting corporate real estate holdings over the recent years. Empirical results show that the efforts render less successful than expected. Retaining the necessary property rights of real estate and the lacking possibilities to place heterogeneous property assets in the market prove to be the main obstacles against effective disinvestments. Therefore, the authors develop an ideal type disinvestment process for corporate real estate. This, in effect, can create clear objectives and higher transparency of real estate portfolios to be divested. Then, innovative financial vehicles can be brought in for refinancing the property portfolios. Companies protect their necessary property rights. The assets, in turn, can be diversified and taken under the management of entities that manage real estate as their core business. Yields are smoothed, risk falls, and more capital becomes available for real estate corporate finance. Matching the empirical results with ideal type process will lead to the main contribution of this article: a gap analysis guiding the steps from today's processes to the optimal real estate disinvestment process for companies.
Post discussion ...
These pages are best viewed with any standards compliant browser (e.g. Mozilla).