Asset Management Strategies

Table of Contents

Table of Figures

1. Introduction

2. Fundamentals
2.1 Definition Asset Management
2.2 Definition Strategy

3. Overview of Assets
3.1 Stocks
3.2 Options
3.3 Bonds
3.4 Real Estate

4. Real Estate Asset Management Strategies
Definition of Real Estate Asset Management
4.1 Life Cycle Costs
4.2 Redevelopment
4.2.1 Potential of Redevelopment
4.2.2 Is there a typical market for redevelopment?
4.2.3 What causes redevelopment?
4.2.4 Examples
4.2.5 Redevelopment of office space in residential units – practical example Resolution GmbH
4.3 Markowitz-Theory and Diversification
Diversification strategies for real estate investors
4.4 Sale and lease-back
4.4.1 Finance lease
4.4.2 Operating leasing

5. Conclusion

6. Statutory Declaration

7. Bibliography
7.1 Books
7.2 Professional Journals
7.3 Regulation

Table of Figures

Figure 1: Function of Real Estate Investment Management

Figure 2: Redevelopment in connection with the different fields of Management

Figure 3: Criteria of risk diversification within a real estate portfolio

1. Introduction

In our daily life, almost everybody owns a portfolio of assets. This portfolio could contain real assets such as a car, or a house as well as financial assets such as stocks, bonds or real estate.^[1]

The German real estate market is influenced by the activity of the Anglo-Saxon investors and so the word asset management becomes more and more famous.^[2]

This paper deals with the important real estate asset management strategies, such as life cycle costs, redevelopment, Markowitz-Theory and diversification and sale and lease-back. They will all be explained and especially the redevelopment supported by some practical examples. Also there is a small overview about what assets could be and how important real estate in this context is.

Today the topic asset management and its strategies are very important, because it becomes in the course of the professionalizing of the real estate management a basic instrument.

The process of finding the right strategies, like the methods according to McKinsey or the Boston Consulting Group won’t be mentioned or explained. Otherwise it would extend the scope of this work.

In the last part follows a short summary and a closing conclusion.

2. Fundamentals

The following paragraphs explain different definitions for the terms asset management and strategy.

2.1 Definition Asset Management

The expression “Asset Management” developed in the real estate business in the late 1960s. The new discipline of real estate management established as soon as institutional investors recognized that the present management services weren’t sufficient enough.^[3]

Asset management means to manage the financial aspects of the total portfolio in a way to benefit the organization as a whole.^[4]

The following quotation is a definition for asset management which describes its concept:

“Asset management […] is defined as the process of maximizing value to a property or portfolio of properties from acquisition to disposition within the objectives defined by the owner. This concept uses strategic planning, which includes investment analysis and operation and marketing analysis, as well as the positioning of a property in the marketplace in accordance with market trends and conditions.”^[5]

The organization “gif” defined within systematization of the different concepts and according to the Anglo-Saxon literature the term “Real Estate Investment Management”. It is part of an overlapping capital management which decides the optimal capital investment structure in different asset categories, such as stocks, bonds or real estate.^[6]

The gif-definition identifies the three layers investment, portfolio and property which are shown in the following figure:

Figure 1: Function of Real Estate Investment Management

illustration not visible in this excerpt

Source: Own design in dependence on: gif Gesellschaft für Immobilienwirtschaftliche Forschung e.V. (ed.), in: Richtlinie: Definition und Leistungskatalog Real Estate Investment Management, 2002, w/o p.

If in the following paper the development of asset management is mentioned, it is spoken about portfolio management.

2.2 Definition Strategy

Strategy is the direction and scope of an organization over the long term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations.^[7]

Or as the author Fraser-Sampson defines:

A strategy is ‘an action plan designed to achieve specific objectives’ and it must have a tactical result in mind, which in turn is a means to achieving its objective over a period of time.^[8]

3. Overview of Assets

The literature gives serveral definitions about what assets could be and how to divide them. Because of that are only a few examples provided, like:

3.1 Stocks

A stock is a share in the ownership of a company. It represents a claim on the company's earnings and assets. If you buy more stock, your ownership holding in the company becomes greater.^[9] “Stocks are the workhorse of your investment portfolio”^[10] and they have three functions:

- Fraction of the equity capital
- Commercial paper
- Certified membership right^[11]

Buying high-quality stocks and holding them for the long term can produce substantial returns to a portfolio.^[12]

3.2 Options

Options are contracts that confer on its purchaser the right to sell or purchase an asset on a specific future date at an already known price.^[13]

3.3 Bonds

A bond is a financial asset and can be issued by a public institution or a private company. It corresponds to a loan that confers the right to interest payments (also known as coupons) and needs to be repaid upon maturity. A bond is a negotiable security and its issue price, coupon total, life span and redemption value are generally known and fixed beforehand.^[14]

Bonds steady a portfolio. They give investors regular and stable income and protect the investment.^[15]

[...]

^[1] Cp. Wang, S. / Xia, Y.: assets, 2002, p. v.

^[2] Cp. Stinglwagner, C. O. / Hirschmann, J.: asset-manager, 2007, p. 28.

^[3] Cp. Dubben, N. / Sayce, S.: asset management, 1991, p. 84.

^[4] Cp. Evers, F. / van der Schaaf, P. / Dewulf, G.: portfolio, 2002, p. 56.

^[5] Dubben, N. / Sayce, S.: asset management, 1991, p. 83.

^[6] Cp. gif Gesellschaft für Immobilienwirtschaftliche Forschung e.V. (ed.): gif definition, 2002, w/o

p.

^[7] Cp. Johnson, G. / Scholes, K.: corporate strategy, 2001, p. 15.

^[8] Cp. Fraser-Sampson, G.: investment strategy, 2006, p. 1.

^[9] Cp. Thommen, J. / Achleitner, A.: business studies, 2003, p. 69 et seq.

^[10] Anderson, J. A.: build your portfolio, 2004, p. 36.

^[11] Cp. Vahs, D. / Schäfer-Kunz, J.: stocks, 2005, p. 104.

^[12] Cp. Brown, C. M. / Hall A. D.: high-quality stocks, 2002, p. 66 et seqq.

^[13] Cp. Esch, L. / Kieffer, R. / Lopez, T.: bonds, 2005, p. 149.

^[14] Cp. Esch, L. / Kieffer, R. / Lopez, T.: bonds, 2005, p. 115.

^[15] Cp. Anderson, J. A.: build your portfolio, 2004, p. 36.