ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk From “Location, Location, Location” to a broader View at Real Estate Risk Oliver Urschel Sustainable Management of Housing and Real Estate School of Economics and Business Engineering Universität Karlsruhe (TH)

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk 2 Hello! Guten Tag ! Goddag! Dzień dobry ! Bună ziua! Jo napot kivánok! Добрый день! Добър ден! Добар дан! Dobrý deň! Dober dan! Dobar dan! Mirëdita God dag! Goeden dag! Tere päevast! Laba diena ! Labdien ! Hyvää paivää! Góðan daginn! Grüezi! Bon jour! Καλημέρα! Buon giorno! Bom dia! Buenos días! Bon dia! İyi günler!

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk In the opinion of many real estate professionals real estate risk is dominated by three factors: Definition of Real Estate Risk –Real Estate Performance:  Real Estate Risk: Change of Net Cash Flow or Change of Value Slide 3 Introduction Real Estate Risk Location Total Return Net Cash Flow Return Change of Value Return - Rental IncomeOperating Costs Bound Capital Fair Market Value (t 1 ) Bound Capital - Fair Market Value (t 0 ) Investment -

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk 1.Collecting risk related terms mentioned in the literature and assigning them to a previously developed risk category system 2.Arranging the risk related terms thematically –Synonymous terms in the same row (e.g. "economic development" and "economy") –Similar terms in subsequent rows –Partly risk terms were assigned to several categories 3.Merging several risk terms to one risk –Terms often on low structural level, or applying only to few special situations (for example home purchase savings promotion was assigned to subsidies in the category political, fiscal and legal basic conditions) Literature analysis - proceeding Slide 4

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk Summary of a representative selection of 28 contributions concerning –general real estate risk management (3 contributions) –risk management of housing companies (1) –real estate portfolio management (3) –risk management of public private partnership projects (1) –risk assessment from the point of view of banks (5) –risk assessment of direct investments in real estate (2) –project development (6) –construction project management (4) –standard books of real estate management (1) –general risk management without relation to a spacial industry sector (2) including risks, risk categories and risk indicators mentioned by the authors. Results of a Literature Analysis regarding Real Estate Risk Slide 5

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk Table view Slide 6 Risk categories Risk related term… …is mentioned by author Risk related terms summed up to risks

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk Location and market related risks –Discussed most intensely Object-related risks during utilization phase –Disussed intensely, especially by contributions addressed to long-term investors Object qualities –Rather weak presence in Literature. In most cases the authors make no difference between fixed object qualities and object condition (changing during time) Object-related risks during construction phase –Comparatively stron presence, especially in articles dealing with project development –Findings from the area of construction management should be integrated General company-related risks –Surprisingly strong presence in Literatur – this may be caused by the assignment of general financial risks to this category –Findings from the area of non-real-estate-specific risk management should be integrated (for example IT- of personnel-related risks) Results from the literature analysis Slide 7

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk Location Slide 8 What should we learn from these results? Company related Risks Object related Risks Market- and Location- related Risks national regional local Micro-location Management Risks Staff-related Risks Financial risk Legal risk Risks from support processes Rental income Operating costs Change of value

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk company „the object“ „the location“ How do the several risks influence Real Estate Risk? Economy Political, legal and fiscal basic conditions Socio- demography Infrastructure Image Neighbour- hood Natural Desaters RE Market Supply Demand quantity quality quantity quality (theoretical) rental Value Rental income Operation and maintenance expenses Net rental income Change of Value RE Risk Object quality Management Staff Financial risk Legal risk support processes

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk The sustainability of buildings is an aspect of building quality –higher productivity and comfort for users –growing demand for sustainable buildings – willingness to pay up to 5% –sustainability certification allows market actors to include these aspects into price calculation and the decision-making process –sustainability signals higher building quality  advantages in tenant‘s and buyer‘s markets Sustainability may result in lower operation and maintenance cost –higher quality of construction, therefore lower maintenance cost –lower consumption of energy and other natural ressources –Optimized life cycle costs Better performance –net rental income –change of value –lower risk (e.g. flexibility, obsolescence) "location"  adaption to environmental condition and climate change What effect has the discussion on "sustainable development"?

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk Improved chances and/or reduced risks of sustainable buildings can be expressed and communicated by making use of already existing property rating systems Multiple-Family DwellingRating Scores Excellent Very good Good Slightly above Ø Ø Slightly below Ø Mediocre Poor Very Poor Disastrous Very good property market conditions Superior building (in terms of sustainability) 2.9 Average building (in terms of sustainability) 3.6 Poor building (in terms of sustainability) 5.3 Average property market conditions Superior building (in terms of sustainability) 3.4 Average building (in terms of sustainability) 4.2 Poor building (in terms of sustainability) 5.9 Poor property market conditions Superior building (in terms of sustainability) 4.3 Average building (in terms of sustainability) 5.0 Poor building (in terms of sustainability) 6.7 Lützkendorf, T.; Lorenz, D.: Sustainability assessment and / or property rating? Presentation at the CESB 07 Prague First Test-Rating Results: „greener“ buildings = less risks

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk Location Socio-demography Politics, fiscal and legal System Economy Infrastructure Environment RE market The location is an important, but not the only risk factor in real estate –more differentiated view at location related risks –company related risks  high influence of management quality on real estate performance Slide 12 Conclusions and remarks Real Estate Risk Location Company-related risks Management Finance others … …

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk 13 Thanks for your attention ! Vielen Dank für ihre Aufmerksamkeit ! Många tack! Dziękuję za uwagi ! Спасибо за внимание ! Köszönöm a figyelmüket ! Merci pour votre attention ! Gracias por la atencion ! Grazie per la sua attenzione! Südamlik tänu ! Liels paldies ! Tänan väga ! Labai aciu ! Faleminderit shumë ! Mange tak ! Благодаря! Efharisto' poli ! Dank u wel ! Takk fyrir ! Tusen takk ! Muito obrigado ! Mult'umesc foarte mult ! Tack så mycket ! Dakujem velmi pekne ! Hvala lepa Teşekür ederim !

ERES 2009 – Stockholm – 2D Urschel: From “Location, Location, Location” to a Broader View at Real Estate Risk From “Location, Location, Location” to a broader View at Real Estate Risk Oliver Urschel Sustainable Management of Housing and Real Estate School of Economics and Business Engineering Universität Karlsruhe (TH) If you have any questions, please do not hesitate to contact me: