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The Real Estate Sector in the Pan Europe Region
The vitality real estate sector to the social and economic health of a country has been acknowledged by experts for years. It is the centerpiece of human habitation providing for infrastructure and space for businesses, leisure, families, sport and other utilities that go into the enjoyment of life. The European real estate sector is one of the oldest and most dynamic in the world. With its complex workings, the real estate sector requires a trained mind to for a proper market evaluation on investments and to provide sufficient data for potential investors. Due to its capital intensive nature, the property market requires private investors in order to bridge the delivery of long-term capital investment and expertise with the infrastructural and real estate needs of the European population. A recent report by (EPRA, 2013) shows the role of public listed property companies in contributing to the real economy.
The report describes them as “long-term players in the largest innovative and most ambitious projects.” However it is also noted that Europeans publicly listed property sector form only 1.8 per cent of the investible commercial real estate compared to other developed regions like North America where it is 6.7 per cent and Asia where it is 6.1 per cent. This situation pulls the Euro zone to below par in terms of private sector investments in real estate in a time when long-term investments in this sector are requisites to achieve the desired economic leverage. This paper seeks to provide insight into the European real estate sector in relation to securities.
Major Public Companies with Exposure to the Sector
According to EPRA (2012) approximately half of Europe’s property is owner occupied with the rest being owned by investors mainly listed property companies, private property companies, non-listed funds and institutions. Accordingly, listed property owners are the largest category of real estate owners. Below is a list of the top10 largest European listed companies:
- Unibail-Rodamco of France
- Land Securities group of the United Kingdom
- British Land Company of the United Kingdom
- Hammerson of the United Kingdom
- Swiss Prime Site of Switzerland
- PSP Swiss Property of Switzerland
- Kleppiere of France
- Capital Shopping Centre Group of the United Kingdom
- Corio of The Netherlands
- Derwent London of the United Kingdom
These companies are important components the most common country indices such as the French CAC, British FTSE 100, and Dutch AEX 25 as is the case with leaders in other industries like Google, HSBC and Royal Dutch Shell. Stock exchange listing makes these companies accessible to a wide range of shareholders from the largest pension funds to the common man. Thus it enables an all inclusive participation in these businesses provides access to knowledge on the multiple benefits of involving professional expertise in the management of commercial real estate. In adding to and improving the built environment, listed companies are the industry leaders and major players.
The EPRA report further underscores the importance of listed companies by stating that these companies, relative to their property portfolios, devote as much as 2-3 times more investment to the development of new buildings than the rest of the real estate industry. In listed companies the property portfolios are managed on a substantial scale with each portfolio averaging €3.275 million worth of property, an amount 5.5 times larger than the average unlisted property fund. Even in the retail sector the average listed company is more than twice as large as the average property in the Investment Property Databank.
Another major advantage is that “economics of scale facilitate cost-efficiencies, greater innovation and strategic portfolio planning, and allow listed property companies to develop and operate prominent urban developments such as modern shopping centers at the heart of many communities.”
Evaluating the Companies
The Norway Ministry of Finance provides for some investment selection and monitoring guidelines. The guidelines state that a market analysis shall be performed as the basis for a decision n the allocation s to individual geographic regions, value creation strategies, property sectors and investment life cycles. In addition each equity sponsor is to be evaluated for their skills and their potential to create value. The criteria used shall include, but not limited to:
- Fit with the program Strategy, Investment Policy and Strategic Plan, and within the overall program.
- A unique strategy that is complementary, not competitive with existing investments
- Integrity of the manager, its employees, and other investors
- Quality of the managers overall corporate gorvenance, management of the partnership, including controls and reporting systems
- Specific objectives
- Managers relationship with standing in the investment community
- Managers relationship with limited partners
- Nature of value-added involvement
- Past financial performance of the individual investment professionals
- Reasonable ratio of committed capital per partner
- Appropriateness of terms and conditions
- Alignment of interests with limited partners
Changing market conditions can dramatically affect the attractiveness of different segments within the overall real estate market. The investment process requires analyzing these market conditions and their effects on the value drivers for each relevant segment. The emphasis shall be on creating a relative value framework in which global investment opportunities can.............
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