Strategic Real Estate Consultancy (Level 3)

Question 1

Main business expenses except for real estate?

Answer 1

• employees
• IT
• systems

Question 2

What is a real estate strategy?

Answer 2

A strategy reviewing how a real estate portfolio can be optimised and used to help a company reach its objectives and goals.

Question 3

How do businesses measure performance?

Answer 3

Businesses will typically have KPIs to track relevant business metrics to show progress of business goals. Setting goals may include increasing profit margin, increasing efficiency, or capturing bigger market share.

KPIs could look at operating margin, net profit margin, return on capital, or benchmarking against industry standards, processes or comparable evidence.

Question 4

Lvl 2 - Lease Regear, Edinburgh - Why did you advise the client on regearing the lease?

Answer 4

• working on behalf of a fund
• funds strategy was to dispose of a large segment of its retail portfolio
• strategy advised on was to regear the lease, increase WAULT, and therefore Market Value ahead of sale

Question 5

Lvl 2 - Lease Regear, Edinburgh - How does increasing the WAULT increase the Market Value?

Answer 5

• reduces risk, and therefore directly compresses the yield, increasing the valuation
• more secure income, less uncertainity

Question 6

Lvl 2 - Lease Regear, Edinburgh - what is the simple investment calculation?

Answer 6

• simple term and reversion
• use to suggest incentive for regear

Question 7

Lvl 2 - Lease Regear, Edinburgh - what is a risk adjusted yield?

Answer 7

implicit adjustment to demonstrate the lower perceived level of risk

Question 8

Lvl 2 - Lease Regear, Edinburgh - what was the yield shift you applied and how was it calculated?

Answer 8

50bps to reflect certainity of longer term lease

Question 9

Lvl 2 - Lease Regear, Edinburgh - what is Net Present Value?

Answer 9

cash flow / (1+r)^n

Question 10

Lvl 2 - Lease Regear, Edinburgh - Talk me through the lease regear at Edinburgh?

Answer 10

• One of the key tenant’s lease expiry was coming up in 2 years.
• entered into negotiations to regear the lease on a 15 year term
• valued existing lease terms by calculating term and reversion
• valued proposed regear by adopted a risk adjusted yield to reflect benefit of more secure term

Question 11

Strategic Report, London - what were the client’s business objectives?

Answer 11

• Capital Partner, part of a fund looking to expand investment portfolio
• targetting retail portfolio in central london to add diversification of asset class
• Looking for stable long term income
• capital preservation
• IRR 6-10%
• lot size was £20-30m

Question 12

Stragic Report, London - what were the client’s return targets?

Answer 12

seeking an IRR of 6-10%

Question 13

Stragic Report, London - what did the market overview say?

Answer 13

Yields in key sub markets and market commentary

2.75-3% Bond st
4-5% Kensington
3-4% Knightbridge
6-7% Chiswick

Question 14

Stragic Report, London - what key economic indicators impacted investment performance?

Answer 14

• GDP growth - 2% in London (holding strong against broader economy)
• Inflation - 3% (come down from Covid levels)
• Interest rates at the time were 5.25%

Question 15

Stragic Report, London - how did you conduct the locational neighborhood analysis?

Answer 15

?

Question 16

Stragic Report, London - What were the prime retail areas and how were these identified?

Answer 16

?

Question 17

Stragic Report, London - what areas highlighted more oppertunistic returns?

Answer 17

?

Question 18

Stragic Report, London -What was the outcome of the analysis?

Answer 18

?

Question 19

Lvl 3 - Asset Optimisation, EPC Strategy - How did you gain understanding of your client’s organisation and strategy?

Answer 19

?

Question 20

Lvl 3 - Asset Optimisation, EPC Strategy - What were the client’s ESG goals

Answer 20

?

Question 21

Lvl 3 - Asset Optimisation, EPC Strategy - What did the RAG analysis show?

Answer 21

Red - non-compliant
Amber - compliant
Green - future compliant

Question 22

Lvl 3 - Asset Optimisation, EPC Strategy - How did the model estimate cost for EPC improvements?

Answer 22

?

Question 23

Lvl 3 - Asset Optimisation, EPC Strategy - How did the model project the expected reduction in energy intensity?

Answer 23

?

Question 24

Lvl 3 - Asset Optimisation, EPC Strategy - What was the outcome?

Answer 24

?

Question 25

Lvl 3 - Turnkey Solution - Kensington - what was your client’s strategy?

Answer 25

?

Question 26

Lvl 3 - Turnkey Solution - Kensington - What is Cat-A, Cat-A+ and Cat-B?

Answer 26

?

Question 27

Lvl 3 - Turnkey Solution - Kensington - How did you estimate the improvement in ERV for different fit-out options?

Answer 27

?

Question 28

Lvl 3 - Turnkey Solution - Kensington - How did you evaluate occupier demand?

Answer 28

?

Question 29

Lvl 3 - Turnkey Solution - Kensington - Why are tenant’s demands shifting to fully fitted office spaces with smaller floor plates?

Answer 29

?

Question 30

Lvl 3 - Turnkey Solution - Kensington - How did you workout the payback period to be 5 years?

Answer 30

?

Question 31

How can real estate strategies improve business performance or generate financial savings?

Answer 31

Business performance can be improved by analysing their real estate portfolio, occupational costs, and development land. Strategies may include:
- Reduce their real estate portfolio to realise savings and improve efficiencies.
- Relocate to markets which command lower rents to reduce costs.
- Use virtual technology - automation / digitisation to reduce costs.
- Focus on sustainability / renewable energy to lower utility costs.
- Outsource some services e.g., IT to reduce costs.
- Develop greenfield or brownfield land to optimise their existing resources.
- Lease vacant premises (to a private individual, company, serviced operator etc.) to generate a rental income.

Question 32

How would you manage real estate to maximise benefits, enhance efficiency, and minimize costs

Answer 32

?

Question 33

What is the role of a Strategic Real Estate consultant?

Answer 33

• Help clients to be more strategic in their thinking and actions,; the consultant needs to understand the nature of the client organisation, i.e.:
• Understanding the organisation’s strategic drivers
• Relating these organisational drivers to real estate requirements (e.g. occupancy, investment)
• Determining specific real estate requirements (e.g. space required, income and/or capital growth objectives)
• Undertaking scenario modelling
  Scenario planning & implementation
• This will involve having an appreciation of:
  o Relevant external and internal drivers (political, economic, socio-cultural,technological, legal and environmental (PESTLE analysis))
  o Whether clients are going through organisational change (e.g. growth/ contraction,takeover, relocation etc)
  o Where clients need to/should locate

Question 34

What is PESTLE?

Answer 34

Policitcal, Economic, Social, Technological, Legal and Environmental

Question 35

What information can you analyse to understand more about Client

Answer 35

Property information (assets. held/occupied, property portfolio profile in terms of location, asset classes, values, leases any valuations they may have had undertaken.

Finances (reviewing financial plans and annual reports, what they hold by way of assets and liabilities, cashflow and its impact upon meeting rental, obligationscash surplus and/or debt availability

How many people they have working for them and where they are

Key aspects of their marketplace or operating context

Their need for/reliance on technology

Question 36

Have you ever used scenario planning/analysis when advising client about their
realestate?

Answer 36

?

Question 37

What is WAULT?

Answer 37

The Weight Average Unexpired Lease Term

Calculated by (unexpired lease terms * annual rent / total rental income)