Strategic RE Consultancy Flashcards
What is ESG and how might it impact your client’s mission statement, values, and objectives?
environment, social, governance
client may have ESG targets as KPIS and be governed by this
Why is it important to understand your clients objectives when providing strategic advice?
this is essential to provide sound, reasoned advice
how might market conditions affect your strategic advice to clients
- inflationary pressures will affect advice on service charges
- high interest rate will affect the market
3 tariffs usa lower growth
How did the rent-free period impact on the value of the industrial unit?
extra 6m was the difference between accretive to value to not
Why might you regear a lease when it is overrented?
strategic reasons
- to keep a long term strong covenant in place to keep long income
- avoid vacancy costs
- preserve tenant relationships
- more flexible terms -e.g. LL wants a lease break or removal of break clause to increase long term value
- market alignment- problematic for lease renewals or rent reviews - prevent legal issues
- negotiate for refurbishment for esg
- market trends - if expected market rent to decrease, will adjust now to avoid future risk
How did you present your data on tenant occupancy costs to your client?
in graphical form on overlay
What alternatives could you discuss with the tenant to address their concerns whilst retaining your clients position?
What impact did not providing relief have on the tenant?
Did this produce any risks for your client as to the affordability of the unit by the tenant?
- alternatives could be a payment plan thereby protecting client interests but also providing relief in terms of timing of payment to tenant
- not providing relief in this case did not have a massive impact, and this was a key factor in my recommendation to client - the tenant had multiple outlets which were performing well; the current store was doing well and though it had some poor months, they could withstand the shocks
- it did not affect affordability to the point of lowering service or payment defaults
You mention you reviewed turnover figures for 12 months, why was this not longer?
not relevant due to COVID
What challenges are the retail market facing and how did you incorporate this into your advice?
inflationary pressures - CPI and RPI very high, new business rates ratings, higher staffing costs
if I were to do it now it may have changed my advice
How did you present your recommendations to your client?
Client strategy: focus on occupancy and, prior to stabilisation of the entire estate, to keep tenants in situ.
I gathered information from the tenant (medical), including their profit and loss accounts - I benchmarked this against similar units and footfall data and found they were in the bottom quartile in terms of occupancy costs, they were solvent and in a strong financial posiition.
If they had not agreed, I would have presented further information, and pointed out that the Lease dictated their obligations and that inflationary pressures were across the board and that these were likely to ease over time.
How did you carry out your review of resident requirements? Where did you obtain this information from?
information was from the residents via:
1. questionnaires
2. tenant meetings
3. resident property manager feedback
What is a SWOT analysis? Could you talk me through the key points of your SWOT analysis? How did this aid in your advice to your client?
Strengths, weaknesses, opportunities, threats - provided a balance of more strengths than weaknesses
- What is a strategy?
a plan of action designed to achieve a long-term or overall aim.
- What are the key strategic objectives of your firm?
as a listed company, it is to maximise shareholder returns - this is done via 4 pillars:
- staff - local knowledge
-financial - prudent capital structure strong cash generation
- long term client relationships
- Intellectual property, market intelligence, brand and reputation
business model is strongly weighted towards non transactional business i.e. property + facilities management
- Talk me through your quantitative analysis of the property? (lease regearing)
- valued the property using two scenarios on AE:
1. using hots provided - this resulted in a fall in overall value of the property
2 reduced RF to 9 months
3. reduced the RF to 6 months which provided increase in value
- How did the decision to do a lease regear align with your client’s asset management strategy?
- pension fund, looking for stable long income
- the tenant was a strong covenant and a national brand
- regearing the lease for a longer term was in line with this strategy
- What was the financial impact of your decision on cost and value?
- value increased by £150k
debt strategy
What financial model did you use to analysis the data you collected?
- I tracked the overall occupancy costs against the revenues provided by the tenant, as well as the profit margins
- What risks were involved in the debt strategy?
the risk that they were unable to make payments and would be in arrears
- however my analysis showed that they were in a position to make payments without relief and therefore advised my client accordingly
- What kind of analysis did you apply to this case? (turnover strategy)
analysis of leasing rents based on last 12m of turnover figures
- Talk me through the process you followed? (t/o strategy)
I listed all of the lease terms relating to turnover
I then gathered the certified turnover figures provided by tenants over the last 12 months
I analysed these by comparing in tabular form, from the highest turnover rents to the lowest - given they were on the same street, there should not have been a big difference between footfall and therefore I deemed the offering to be the key differential.
One F&B unit stood out, with a low base rent but also bottom 5 in turnover rent .
I organised a meeting with the business owner and noticed they were the only unit to be open on Xmas
I advised the client on this
- How did you present your advice to your client? (to strategy)
advised client in meeting presentation
- What qualitative analysis was undertaken to help inform your advice? (value add_
Resident meetings, interviews with residential PMs, questionnaires to residents
- How did your strategic advice ensure value for money?
- value for money due to no rent being due ; increase in revenue for tenants, increase in turnover rent for client - ‘win-win’
- presented this in powerpoint meeting in person
- What were the risks you assessed to the strategy?
risks that the proposal would generate no extra revenue - however even if this did happen, there was no major loss to the client nor tenant and therefore the risk was low.
strategic uses of real estate?
- investment
- making buildings more useful and profitable
- owner occupation
qualitative vs quantitative?
Primary sources provide raw information and first-hand evidence. Secondary sources interpret, analyze or summarize primary sources
