How to design an efficient strategy for real estate investments?

Doru LupeanuSenior consultantFix Up marketing

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Contents

The need for strategy on the real estate market

Relevant questions for an optimal strategy

Rates of yields and risks

The development of Cluj real estate market

Target audience

Choosing the location

The mixes involved

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Riding the wave – the usual situation in the growing marketsMost often used strategy is copying the “success stories”

The need for strategy on the real estate market

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Under the wave – usual situation in the downturn markets

To survive you have to know at least how to swim

The need for strategy on the real estate market

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Relevant questions for an optimal strategy

- Real estate market has in general a cyclical evolutionThere are many opportunities for those who can forecast the upturns and downturns of the market

-Any strategy involves a differentiation and a positioning for each and every company

- The optimal strategy is not necessary the most expensive one: “ You don’t have to swim faster than the shark, but only faster than those around you”

-The foundation of every strategy is the information -Relevant information can be obtained by answering the questions: Who am I? What do I build? To whom? Where? How?

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Who am I?

What are my skills?

What experience I have in this field?

What are my objectives?

What kind of financing resources I have?

Developer vs. Investor

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What do I do?

What sector do I target?

What kind of risks are involved?

What yields can I expect?

What is the dynamic of my market?

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What do I do?What is my segment:

Segment Options DEVELOPERReturns

Options INVESTORReturns

Residential

Build to sale 100%

Build to sale 80%

Build to lease 10%

Build to lease 7-8%

Offices

Build to sale 100%

Build to lease 7-8%

Build to lease 20%

Commercial

Build to sale 100%

Build to lease 6.5-7%

Build to lease 22%

Industrial

Build to sale 100%

Build to lease 12%Build

to lease20%

- Risks involved

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Cluj-Napoca

- Second city in Romania as economic potential after Bucharest

-Most new start-ups after the capital 81.766 new companies registered between 1990-2008

- Population between ages 15 to 35 represents approximately 40% of the city population

- The most important university center din Transylvania approximately 100.000 students

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The development of Cluj real estate market

Residential:

-increase in the number of constructions starting 2003

-in 2005 were launched approx. 1000 new units (400% increase from 2001)

-in 2006 were issued 1456 building permits for new housing units

-in 2007 were issued 3359 building permits for new housing units

-in 2008 it is said that ~25000 housing units “exist” on the market in a project faze or in different fazes of construction

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Offices:

- Starting 2006 we can say there is a real offices market in Cluj

- 2 class A offices buildings in Cluj: Power Business Center and Maestro Business Center (according to BOMA standards)

- 110000 sq meters office space existing in 2008

The development of Cluj real estate market

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The development of Cluj real estate market

Commercial:

-Clujul is the most developed city in Romania regarding commercial spaces

- 400 sq meters of commercial space to 1000 inhabitants

- 2 malls existing -(Polus Shopping Center and Iulius Mall)

- 2 malls in construction stages(Atrium Center and Akademia)

- Other projects with notable surfaces(Central, Sigma and Hotel Continental)

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The development of Cluj real estate market

Industrial:

- Approx. 350000 sq meters industrial spaces of which only 40% new or modernized spaces

-Tetarom: “success stories ”, a model copied by other cities

- Nokia

-We expect positive

evolution of the logistic sub segment

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To whom?

Target audience

Private persons: - Higher risks corroborated with higher yields and a high level of demand

Juridical persons:-Increased stability but a more specialized audience

The structure of demand :- depends on a series of

factors: offer, substitute demand, buying power

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20022003

20042005

20062007

20082009

2010

0

2

4

6

8

10

12

14

16

18

square meters

year

How many square meters can a person with medium income can afford in Cluj

relaxareacreditarii

mentinereanivelului decreditare

relaxarea creditarii 6.22 7.44 7.14 11.32 12.72 13.86 9.1 15.09 16.47

mentinerea nivelului de creditare 6.22 7.44 7.14 11.32 12.72 13.86 9.1 10.56 11.52

2002 2003 2004 2005 2006 2007 2008 2009 2010

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Where?

Choosing the location

Depends on various factors out of which :

-the migration of population towards and inside the city

-infrastructure; PUG Transport and utilities

-the potential of the area Dorobantilor, Calea Turzii…

-commercial potential Napoca, Eroilor, Ferdinand…

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How do I do it?

Financial mix:-financing sources, price policies construction budgets

Product mix:-surfaces, finishing, facilities

Distribution mix: -own sales force vs. real estate agency

Promotional mix:-promotional channels, budgets allocated to promotions

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Contents

The need for strategy on the real estate market

Relevant questions for an optimal strategy

Rates of yields and risks

The development of Cluj real estate market

Target audience

Choosing the location

The mixes involved

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Instead of conclusions

Tactics for the current situation :

-There is no generally applicable recipe The information is important and it has to be integrated in an optimal strategy tailored for everyone’s needs

-From forced awaiting to a planned actionThe re-evaluation of the costs involved in maintaining the investment and the desired exit point from the market

-Differentiation through price, quality or adjacent services Accent on pricing seems a simple solution but not necessary efficient

-Analyzing all options, including those less attractiveRenegotiation of the contracts, bankruptcy, sale to other investors within the margin of recuperating the initial investment

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Thank you!

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