Appunti di Financial Management of Real Estate Transactions + Project Management

Financial Management of Real Estate Transactions

Remember: the role of finance is becoming more relevant - not only in a traditional way (like mortgages, project finance) but also in other ways as real estate funds, SIIQ or the formation of spin off or sale and leaseback.

Lezione 1

• Real Estate Cycle
• Real estate sector and the property companies

The pillar where everything happens from the construction to the management.

A big revolution was the introduction of management in the construction field.

When we speak about real estate we speak about management

Real estate economy (construction + management) → a chain from producer to the capacity to manage the chain

A cycle and never finish

The big revolution is concentrated in 2 aspects:

• Management aspect → capacity of developer
• Financial tools

Facility manager

Able to manage the buildings in the best way, as a coordinator of all, having an overview of all the building and able to anticipate problems.

Property manager

Concentrated on managing the value and the productivity of the building; he has contact with the tenant, so the value of the building increases.

Each of them has its own core-business. Their core-business is not to manage assets/buildings e.g. financial groups' core-business = manage money!

Real estate companies

They only manage assets

Property companies

They have assets that are owned. Sometimes they also manage in some situations they rent.

Convivo

• One of the biggest property companies in Europe that has the capacity to manage and to manage a real estate investment operation.
• Originated in France and Italy

Coima

Italian company, originated in the past, and they were visionaries. They had the possibility to go around the world and learn from companies some strategies to apply to Milan.

When you buy something and immediately you have the product

In the Indirect Investments

• Here you give money to a third part (A Vehicle)
• You don’t buy an house, cinema, hotel -> you just buy a share
• You buy a part of a share of an investment of

Real Estate Funds -> to one of the investments too between normal people

When indirectly you decide to invest in real estate sector

You have not a big amount of money to buy all the asset

Investment when you put money in a company that after a period (vehicle) can give you back the money plus income

In Italy is a quite recent typology of investment -> introduced by a law in 1998 - TUF (Testo Unico della Finanza)

• Before there was the construction period that was ready
• Else core doesn’t still be necessary later

So the Real Estate Investment Fund was introduced in the Real Estate period must take in account the life of your asset

A Real Estate property

• It's a value not just a building
• Profitability

Real Estate Funds is to collect money from people to invest in real estate (in new building or existing building) to have back after a period a return on that investment.

TUF

• Introduced

• The possibility to invest in shares
• The Saving Management Company gives an opportunity to invest indirectly in Real Estate (SGR)

SALE AND LEASE BACK OPERATIONS

When something strategical. A company is the owner of a building and decides to sell and becomes the lessee for the core business. (The decision to sell is to avoid to pay taxes or reduce costs ecc.)

The company who buys it, is a Real Estate company. Then the leasing company leases back to the seller company the building (They want to remain working in that building)

Seller → was a owner → became a tenant

The possibility to return to be the owner exists if the seller company wants.

ITALIAN REAL ESTATE INVESTMENT TRUSTS - SIIQS

If a company is listed & is in the stock market

Needs TRANSPARENCY

In Italy, not so used vehicle.

MOST RECENT INVESTMENT VEHICLES

1. CROWDFUNDING

(Just 4 years ago wasn’t used in Italy)

The use of crowdfunding in Real Estate is only 1%, it is more used in other sectors.

The innovation is that all of us are involved in this kind of operation.

Nowadays crowdfunding is quite used 4

CIVIC CROWDFUNDING

Is the modality to use crowdfunding with Real Estate public administration.

When public administrations do not have the possibility to attract investors to requalify or they find a financial support from people.

The hexagon model

• On the horizontal axis, there are transactions
• On the vertical axis, there are prices of the properties

The model shows the different phases that the real estate market can go through:

1^st phase

• The number of transactions increases but the prices remain the same.
• Good phase for investors to make some investments. Called "stable phase".

2^nd phase

• The transactions increase, but also the prices.
• In the market there are investors that are buying dwellings. They are willing the same price → a kind of boom in the RE market. Called "boom phase".

3^rd phase

• The transactions are decreasing but prices are still increasing. Called "the phase of followers". This is a boom phase and everyone wants to invest in the real estate market, even non professional investors.

4^th phase

• The transactions decrease and prices remain the same. Called "disillusion phase" when the boom is going to transition itself into a bust. The market trend is going to change.

5^th phase

• The transactions decrease and prices decrease as well. Called "the sell phase". Some investors that were not so clever and have to sell assets at a lower price than they bought.

Lesson 6 - Real Estate Hotel Sector

16 November

The Tourist Market

The interest of hotel sector nowadays is important due to the increase of travels abroad. Based on the internal of asset classes investments in the last 10 years, the hotel one was the one with the highest interest of investments for hotel asset class (infact there was an increase of 4% of international arrivals in Europe).

Why? The value of an hotel is the management. In Italy, there is a high number of rooms but the most of them are spread in the country and each hotel has few rooms. Moreover, the most of hotels are managed by families (on one side is a value) so it's not a professional management in the meaning of what investors are looking for.

Italy lost many opportunities because of the lack of the right products for the traditional investors. Italy infact hasn't so many chains of hotels and the investors are looking for this modality because more secure and a safe investment.

Chains: a modality that gives the same standard, quality, services, prices everywhere in the world.

More business, more experiences from one...

Modern market - Not more secure from investment point of view.