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Homework answers / question archive / SHA586: Optimizing Asset Management Strategies SC Johnson College of Business, Cornell University Real Estate Asset Management Course Project Instructions: Working through this project, you will practice critical asset management skills through the development of parts of an Asset Management Strategic Plan for the property you identified in the activity “What is Your Asset Manager Style” at the beginning of the course
SHA586: Optimizing Asset Management Strategies SC Johnson College of Business, Cornell University Real Estate Asset Management Course Project Instructions: Working through this project, you will practice critical asset management skills through the development of parts of an Asset Management Strategic Plan for the property you identified in the activity “What is Your Asset Manager Style” at the beginning of the course. In Part One of the project, you will perform a SWOT analysis for the property you identified. You will consider both internal and external factors that impact the property and determine the appropriate quadrant for each factor. In Part Two of the project, you will develop an annual schedule for the meetings and other activities you would engage in as the property manager of your property. In Part Three of the project, you will envision a value enhancement project for your property that results in a better, more creative use of the space and increases revenues. In Part Four of the project, you will consider the appropriate hold period for your property and identify potential triggers that might necessitate a change in that strategy. Based on this analysis, you will also devise an exit strategy for your property. Once you have completed all four parts of the project, submit this project document and any supporting documents to your instructor for grading. A Submit button can be found on the Part Four assignment page. Information about the grading rubric is available on any of the course project assignment pages online. Do not hesitate to contact your instructor if you have any questions about the project. 1 © 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners. SHA586: Optimizing Asset Management Strategies SC Johnson College of Business, Cornell University Part One – Conducting a SWOT Analysis Before you can set appropriate strategies for a property, it is important to perform a thorough analysis of the strengths, weaknesses, opportunities, and threats of the building. This information is included in the Asset Management Strategic Plan and will inform strategic decisions made about the property. In this part of the project, you will perform a SWOT analysis for the property you identified earlier in the module. 1. Using the template on the next page, brainstorm relevant factors for your property in each quadrant. Ideally, each quadrant should have two or more factors and you shouldn’t have more than 15 factors total. You may want to refer to the SWOT analysis tool for typical factors that are relevant in a SWOT analysis. Note: If you are actively working with this asset as part of your job, you can include your co-workers or members of the property management team in your brainstorming exercise. 2. Identify two factors from different quadrants that you think are most critical. Provide a brief analysis of these factors (150-300 words total) that discusses why each factor is important to the property and strategies for capitalizing on it or overcoming it, depending on whether the factor is a strength/opportunity or weakness/threat. 2 © 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners. SHA586: Optimizing Asset Management Strategies SC Johnson College of Business, Cornell University Strengths Weaknesses • What do you do well? • What could you improve? • What unique resources can you draw on? • Where do you have fewer resources than others? • What do people in your market see as your strengths? • What are people in your market likely to see as weaknesses? Opportunities Threats • What good opportunities can you spot? • What obstacles do you face? • What trends can you take advantage of? • What are your competitors doing? • How can you turn your strengths into opportunities? • Could any of your weaknesses seriously threaten your business? 3 © 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners. SHA586: Optimizing Asset Management Strategies SC Johnson College of Business, Cornell University SWOT Analysis Identify two factors from different quadrants that you think are most critical. Provide a brief analysis of these factors (150300 words total) that discusses why each factor is important to the property and potential strategies for capitalizing or overcoming each one. Factor Analysis 4 © 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners. SHA586: Optimizing Asset Management Strategies SC Johnson College of Business, Cornell University Part Two – Planning the Annual Asset Management Activities To be an effective asset manager, you need to gather information about a property on a regular basis so that you can monitor performance and identify potential issues. Being thoughtful and proactive in your communications with the property management team is critical to developing a positive working relationship and making the most of your interactions with them. In this part of the project, imagine that it is the beginning the year and you, as the asset manager, are updating the Asset Management Strategic Plan and scheduling the meetings and activities with the property management team for the coming year. While this might seem like a straightforward exercise, it is critical for both the asset manager and the property management team to plan for these meetings, thinking strategically about when to have them and what topics to cover. Because there are many people involved in these meetings, being proactive when scheduling the meetings is key. Complete the table below, considering all the meetings or other activities you would have throughout the year with the property management team. You should include at least 3 different meetings or other activities. We have completed the first row as an example for you. Meetings/Activity Capital Expenditure budgeting When will activities occur Topics covered Annual meeting to occur Projects to be approved in upcoming annual capital expenditure in July (or mid-fiscal year) budget (major renovations, large equipment, etc.) (See Read page in Module 3 for full description of activities) 5 © 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners. SHA586: Optimizing Asset Management Strategies SC Johnson College of Business, Cornell University 6 © 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners. SHA586: Optimizing Asset Management Strategies SC Johnson College of Business, Cornell University Part Three – Envisioning a Value Enhancement Project The primary goal of the asset manager is to create or grow the value of the asset. To achieve this objective, a common strategy is to apply the “highest and best use” principal. This strategy encourages the asset manager to transform spaces within the building to increase the revenue they generate. In this part of the project, you will apply this strategy to the asset you identified at the beginning of the course. To generate value enhancement project ideas, review the results of the SWOT analysis you performed earlier for this property. Consider competitors and determine if these buildings have creative amenities or other ideas that you could implement. Ask yourself the question: if money were no object, what would I do in this space? Write one page (~300 words) that describes the value enhancement project: • Include a thorough description of your project idea. You can include photos of the space if this will help your explanation. • Provide a rationale for your project based on the revenue or other benefits you think it will generate. You don’t need to include specific revenues or ROI values but you should discuss what you think the impact to revenue will be. • Describe your first few steps in implementing the project. 7 © 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners. SHA586: Optimizing Asset Management Strategies SC Johnson College of Business, Cornell University Part Four – Planning the Hold and Exit Strategy The hold and exit strategy usually result from a combination of the overall real estate strategy of an owner and the specific characteristics of an asset, such as the stability of the market, prospective cash flow, and future capital expenditure needs. How long an owner plans to own an asset impacts many decisions around maintenance and renovation expenditures. In this part of the project, you will formulate the hold and exit strategy for the asset you identified earlier in the course. Focus your analysis on the specific characteristics of the asset, not on the real estate strategy of the owner (unless you have specific knowledge about the strategy). If you are not that familiar with the asset, you can make some logical assumptions about the asset if you make these assumptions clear in your analysis. Write ~300 words that describe your hold and exit strategy, including the following: • • • • • Will you hold your asset for the short-, medium-, or long-term and why? Consider things such as: o Neighborhood dynamics and changes to demand generators o Competitors and any expected changes o Asset condition and potential renovation needs Explain the rationale for the strategy, considering market and operational conditions. Provide a brief description of some of the activities you would potentially plan to execute during the hold period to maximize the value of the asset (for example, renovations, maintenance, repositioning, rebranding). Provide explanations for two triggers that could occur that would change your hold strategy. Describe two activities you would perform to prepare this asset for sale. 8 © 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.
Real Estate Management Project
Real Estate Management Project
Part 1 – SWOT ANALYSIS
Strengths
There is a ready market that would benefit from the successful completion of the project. By carrying out the project in the chosen location, it is possible to expect an appropriate market reception by people within the area and its surroundings.
The availability of cash for undertaking the project makes it possible to estimate the completion time, and thus plans on such activities as marketing are made in advance. With funding expected to be acquired regularly throughout the process, a smooth running of activities is expected.
Weaknesses
There may not be enough information as to why there is not much real estate development in the chosen area. It may be the case that people do not prefer living and working in such environments. Ensuring full occupancy in such a case would be difficult.
The project is capital intensive. Obtaining the necessary funds to ensure its timely completion may not be possible on demand. Delays arising from such experiences would lead to losses in the net present value of its expected future cash inflows.
Opportunities
The lack of such buildings within the chosen location makes it a good idea as it would be a preferred choice for people. The building would thus serve to fill the existing market gap on real estate in the chosen location.
Income from the real estate business could be channeled to other projects without necessarily harming the project itself. With proper management, proper maintenance checks can be performed on the building without risking revenue from the extra costs.
Threats
The building project could be faced with stiff competition from similar projects over time. Competitors may choose to offer the same services at a lower cost, thereby putting the project under consideration out of business.
The prices set in securing tenants in the building may be too high for the population, making it impossible for the building to have full occupancy.
PART 2 – ACTIVITY PLANNING
|
Meetings/Activity |
When will activities occur |
Topics covered |
|
Capital Expenditure budgeting |
Annual meeting to occur in July (or mid-fiscal year) |
Projects to be approved in yearly upcoming capital expenditure budget (significant renovations, large equipment, etc.) (See Read page in Module 3 for a full description of activities) |
|
Cash inflow versus cash outflow expectation |
Monthly |
Cash transactions from the building would be analyzed to determine the economic viability of the project. Appropriate measures could then be implemented to ensure the project remains profitable. |
|
Obtaining customer Reviews on Services rendered. |
In every four months |
Feedback would be collected from tenants regarding their stay in the organization. Such feedback would form the base for decision-making regarding matters arising from the project. Proposed changes would also be obtained from the patient. |
|
Maintenance |
Semiannually |
Damages within the building will be corrected as soon as possible. However, the semiannual maintenance program would entail an intense repair and improvement by involving painting. |
PART 3 – VALUE ENHANCEMENT
A significant proportion of the value enhancement strategy would entail action on the reviews obtained from the planned customer-feedback meetings held every four months. The management needs to implement measures that align with the client's expectations on the changes that should be made. In light of this conclusion, whatever policy that the management would choose to implement would be client-centered. Areas of strength would thus be maintained while areas of weakness would be improved, going by the client's recommendations.
The project’s value enhancement could also be achieved by encouraging investors to set up appropriate businesses within the project's locality. The management could encourage other investors to set up restaurants to encourage more people to live within the setup project. Such proposals could be facilitated by getting into partnership with investors on the businesses' ideas. Incentives such as the construction of roads could also be used in the value enhancement plan.
Revenue from the project would be reasonably set according to the prevailing market prices or even slightly lower to encourage people to occupy the building. Different payment options would be made possible for residents. One could choose to make monthly, quarterly, or yearly payments depending on one's convenience. The sale of units within the building would also be made possible, and the price in this regard would be determined as the present value of perpetual future cash flows. Various adjustments on inflation and maintenance would also be made in the calculation.
In implementing the plan, it would be imperative to work within the scheduled time of activities. The marketing of the business would then follow. Depending on the occupancy rates, appropriate changes would be made to the pricing.
PART 4 – Hold and Exit plan
Depending on the market’s overall reception to the plan, proportionate measures would be agreed upon on the hold and exit strategy. If monthly payments were more profitable than the sale of a portion of the project, a hold strategy would be preferred leaving no room for an exit. This preference would mainly be the case where there is a foreseeable boom in the industry shortly. The short-term view would thus be held with a possible departure in the distant future.
The short-term and possible long-term future orientations are likely to be characterized by increased market competition. A short to medium view on holding on to the assets would be preferred, which would be necessary to ensure the project's maximum profitability while the prices are still favorable. The management would hold a short-term holding strategy if the future in the operational environment led to a significant lowering in the overall market prices.
Renovations would be done on the building to optimize the value of the assets during the hold period. Activities involved would include the repair of broken assets within the building. Painting to ensure the building stays in shape would also play a role in ensuring the maximization of the assets held.
The prevailing market condition would dictate adverse changes in the hold strategy. Depending on the experts' opinions on the future of the real estate market, the hold and exit strategy would change appropriately. Also, the availability of an immediate lucrative deal would necessitate the change in the plan in place, and it follows from the certainty of the amount made.
A robust marketing strategy would be put in place to prepare the asset for sale. The advertisements would be placed on relevant sources such as newspapers and magazines. Also, the necessary documentation to facilitate the sale would be made ready in advance. Such could include employing the service of a lawyer, which would be done to ensure the legality of the process.
