Active asset management for real estate

What is the starting point?

Over the past 15 years, the performance of real estate portfolios in Switzerland has been largely characterized by appreciation due to the favorable market environment. Cash flow generation or the focus on income optimization often took a back seat.

The temporary end of the low-interest rate environment presented the real estate market with new, albeit familiar, challenges. With the changed interest rate environment, performance is no longer primarily achieved through appreciation. Active asset management is becoming increasingly important again, although its complexity and focus have changed considerably in recent years.

On the one hand, tenants have high expectations regarding ESG issues, with international companies in particular having to meet ever stricter requirements in terms of sustainability. There is a clear trend towards "green leases", i.e. requirements regarding the sustainability of a building are explicitly set out in the lease. On the other hand, new regulatory provisions regarding the energy efficiency of buildings are coming into force, making energy-efficient refurbishments unavoidable.

In recent years, real estate owners have increasingly been using external service providers to perform asset management tasks as an efficient and cost-effective solution. Outsourcing asset management tasks enables property owners to retain strategic control over their properties while at the same time making targeted use of the following advantages of an external service provider:

Focus of ownership on strategy development
Outsourcing the operational implementation of the strategy
Access to expertise and specific expert knowledge
Access to an extended network and in-depth market knowledge
Flexible use of staffing resources
Reduced personnel and infrastructure costs
Review of alternative options for risk reduction
Optimization of decision-making processes
Performance-based fee models
Avoidance of potential conflicts of interest

Why is the use of a property management often not sufficient?

The service of professional property management is a key success factor, but the challenges and potential conflicts of interest are often underestimated by building owners. This is particularly evident when properties contain challenging occupancies. For example, the requirements for managing a complex commercial property are very different from those for a property used primarily for residential purposes.

In addition, the interests of the property manager and the owner are not always aligned. The aim of property management is often to solve an existing problem as quickly as possible in order to move on to the next challenge. However, the quick resolution of a problem does not guarantee that the best long-term solution in the interests of the owner will be achieved. It is also of limited relevance to the property manager's fee whether or not the costs incurred by the owner (maintenance work, refurbishment costs, etc.) are optimized, for example by exploiting economies of scale or negotiating pricing conditions.

These limited incentives for the property manager to add value for the ownership can be greatly offset by the involvement of an external asset management, which is fully committed to the interests of the owner.

When does external asset management support make sense?

The question arises as to the conditions under which a property owner should engage an external service provider for asset management tasks. The following criteria serve as a basis for decision-making:

Cost vs. income: Can the required service be provided more efficiently and costeffectively externally than with internal resources?
Specialist expertise: Is the existing subject matter expertise and experience sufficient to implement a professional, yieldoriented management of the properties?
Personnel resources: Are there sufficient internal personnel resources available to manage and develop the properties in the best possible way?
Portfolio size: Has the real estate portfolio reached a critical portfolio size (CHF 30 - 50 million)?

How do we proceed?

Activating Real Estate Assets - the name says it all. We do not see a property as an inert unit consisting of a plot of land and the concrete, timber and steel space built on it. For us, a property is rather a dynamic company with its own business plan, which is in constant competition with its rivals and needs to assert itself on the market. The rental space represents the product offering and the tenants are the customers. The offering must constantly be improved in order to adapt it to the changing needs of the customers. This optimization is an ongoing process that is always geared to the requirements of the market environment.

Our approach to practice-oriented asset management aims not only to administer a real estate portfolio, but also to actively shape and sustainably improve it in order to achieve a higher return and a long-term appreciation for the owner. This is a dynamic optimization process that must be continuously adapted.

We actively and systematically implement the following core asset management tasks:

1. Control and monitoring of day-to-day operations

As an important component of day-to-day operations, we manage and monitor all external service providers. Our focus is on operational property management and facility management.

2. Efficient cost management

We pursue efficient cost management, for example by reducing operating costs (analysis of the supplier structure, use of economies of scale, negotiation of price conditions, outsourcing of energy and operating costs to tenants) or implementing energy-related renovation measures to increase the property's long-term earnings.

3. Leasing and tenant management

Lease analysis: A detailed analysis of the in-place leases makes it possible to identify and implement potential for increasing rents (market rent), contract extensions or adjustments to contractual conditions (e.g. outsourcing of ancillary costs).
Tenant satisfaction analyses: Conducting tenant surveys and evaluating reasons for termination help to identify future risks and take necessary measures at an early.
Marketing strategy: We develop a targeted marketing strategy in which existing tenancies are fostered and new tenants are acquired in order to sustainably improve the performance of the property by optimizing the occupancy structure.

4. Financial planning

We carefully plan income and expenses and carry out controls (budget/actual comparison) based on targets and benchmarks. Budgeting covers both operating costs and investments in maintenance and upgrades. A renovation concept with long-term investment planning serves as an important guideline.

5. Risk management

We use sensitivity analyses to identify the effects of changes (e.g. interest rate, vacancy rate) on the performance and value of the property at an early stage.

6. Controlling and reporting (ESG)

Dashboard reporting: We use dashboards to provide a visual representation of all key figures and performance indicators (KPIs) at a glance.
Reporting: Detailed reports documenting the financial development, leasing situation, planned investments and changes in the portfolio serve as a sound basis for decision-making.

7. Refurbishment and development potential

In order to increase the value of the property, we examine comprehensive renovation measures and the potential for additional structural utilization (additions, replacement buildings, etc.). The presentation of the various options for action provides a sound basis for the owner's decision on how to proceed.

What makes AREA stand out?

We have a wide range of practical experience in active asset management for institutional and private clients. The real estate portfolios that we manage are diverse, both in terms of use and geographical diversification.

You benefit from the following advantages:

We act independently of other market players and are passionately and conscientiously committed to the specific interests of our clients.
Long track record in portfolio and asset management for institutional real estate owners (pension funds, investment foundations)
Management of mixed-use portfolios (residential, commercial, logistics, retail)
Comprehensive subject matter expertise regarding commercial properties
Substantial practical experience thanks to many years of "front-line" experience in property and facility management
Specialized in portfolio development (acquisitions, increased utilization, new construction projects)
Core competence in the area of construction projects, which includes both renovation projects and the development of new buildings