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Executive Summary
250
35%
200
30%
150
25%
100
20%
50
15%
0
12/2007
10%
12/2008
12/2009
12/2010
12/2011
12/2012
12/2013
bps
300
200
100
0
-100
-200
Berlin
Madrid
New York
Tokyo
Hongkong
Sydney
London
Source: PMA, Credit Suisse, Last data point: June 2014 Historical
performance indications and financial market scenarios are not
reliable indicators of current or future performance.
30%
25%
6%
5%
20%
15%
4%
10%
3%
5%
0%
2%
-5%
1%
-10%
0%
-15%
-20%
-1%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
10-year US
government
bonds
MSCI World
-0.6
0.8
0.3
10-year US
government bonds
-0.34
-0.15
Global REITs /
real estate
equities
0.35
Global REITs /
real estate
equities
Direct investments
in office real estate,
global
10
5
0
-5
Income Return
-10
-15
See also, for example: Case, K.E. and R.J. Shiller. 1990.
Forecasting Prices and Excess Returns in the Housing Market.
Journal of the American Real Estate and Urban Economics
Association 18(2): 253273. Or
Barkham, R. and D. Geltner. 1995. Price Discovery in American and
British Property Markets. Real Estate Economics 23(1): 2144.
1
90
80
However, a global approach does not just mean greater investment opportunities in terms of volume. At the same time,
investors can partake in positive economic developments and
trends from other countries, such as the upcoming middle
class in many emerging markets.
2011
2021
20
70
60
15
50
40
10
30
20
10
0
Switzerland
Nordics
Germany
UK
Netherlands
0
Europe
USA/Canada
Asia Pacic
GCC
Latin America
GCC
60%
Latin America
50%
Asia-Pacic
40%
USA/Canada
30%
Europe
20%
10%
0%
2011
2021
Europe_ex_London
London
US_ex_NY
NY
Asia
250
230
210
190
170
150
130
110
90
70
12/2000
06/2001
12/2001
06/2002
12/2002
06/2003
12/2003
06/2004
12/2004
06/2005
12/2005
06/2006
12/2006
06/2007
12/2007
06/2008
12/2008
06/2009
12/2009
06/2010
12/2010
06/2011
12/2011
06/2012
12/2012
06/2013
12/2013
50
Fig. 9: Top net yields for prime office investments (lows and highs since Q4 2000 vs. current value)
10.0
Q3 2014
9.0
8.0
7.0
6.0
5.0
4.0
3.0
Historical returns and financial market scenarios are no guarantee of current or future performance. Last data point: September 2014
Sources: PMA, Credit Suisse
Athens
Lisbon
Rotterdam
Sydney
Rome
Warsaw
Prague
Manchester
Dublin
Amsterdam
Barcelona
Chicago
Milan
Madrid
Washington DC
Stuttgart
Shanghai
London: City
Dusseldorf
Frankfurt: City
Berlin
Hamburg
Munich: City
New York
Paris: CBD
Zurich
Tokyo
Singapore
Hong Kong
2.0
International Diversification
Investors also can benefit from the diversification potential of a
global investment approach. In general, the risks that affect a
real estate portfolio can be divided into non-systematic and
systematic risks (Fig. 10). Non-systematic, i.e. diversifiable
risks, include property risks, along with local and national/
regional market risks. By investing in various properties, in
different local markets, the risks can be diversified at the
property and the local level. However, if a portfolio is invested
only in the home market, all properties will always be subject
to the same national trends, such as employment base and
growth, demographic changes, inflation, and regulation.
Local
Market
Object
Tab. 2: Estimated correlation matrix for annual total returns on office space for selected countries* (19902013)
France
Germany
Ireland
Italy
Netherlands
Spain
UK
USA
Japan
Australia
Hong Kong
Singapore
France
Germany
Ireland
Italy
Netherlands
Spain
UK
USA
Japan
Australia
1.00
0.56
0.65
0.61
0.52
0.74
0.66
0.75
0.74
0.56
0.39
1.00
0.48
0.44
0.49
0.63
0.14
0.28
0.48
0.05
-0.08
0.39
1.00
0.39
0.67
0.78
0.52
0.61
0.61
0.46
0.06
0.29
1.00
0.57
0.71
0.33
0.40
0.38
0.40
-0.13
0.12
1.00
0.77
0.36
0.57
0.32
0.50
-0.18
0.40
1.00
0.42
0.59
0.59
0.49
-0.13
0.24
1.00
0.71
0.50
0.65
0.41
0.37
1.00
0.65
0.76
0.28
0.58
1.00
0.52
0.24
0.43
1.00
0.19
0.54
1.00
0.45
1.00
*Total returns on a national level correspond to the weighted total returns of each leading city; Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance. Last data point: March 2014
Source: PMA, Credit Suisse
80%
70%
Ofce Netherlands
60%
Weight
Ofce
Hong Kong
Ofce Beijing
Ofce
Melbourne
Ofce Stuttgart
50%
Ofce
N.Y.
Ofce Houston
Ofce Manchester
30%
20%
10%
Ofce Marseille
Ofce Lyon
11.9%
11.5%
11.2%
10.8%
10.5%
9.8%
10.1%
9.5%
9.1%
8.8%
8.4%
8.1%
7.7%
7.4%
7.0%
6.7%
6.3%
6.0%
5.6%
5.3%
Ofce Vienna
Return
Economic
significance
Quantitative
model
Synthesis of
qualitative and
quantitative
factors
Europe
37%
40%
0% bis 81%
Americas
35%
40%
0% bis 40%
APAC
28%
20%
Ofce Perth
Ofce Cologne
40%
0%
Source: PMA, IMF, Credit Suisse, Last data point: December 2013
Ofce Seoul
90%
Country
Rank
Country
United Kingdom
11
Sweden
USA
12
Germany
Australia
13
Singapore
New Zealand
14
Hong Kong
France
15
Belgium
Canada
16
Denmark
Netherlands
17
Poland
Ireland
18
Spain
Finland
19
Norway
10
Switzerland
20
South Africa
Adam Grant Building, 114 Sansome Street in San Francisco, an investment of one of the Credit Suisse real estate funds
11
Buy
The acquisition goal is to purchase properties that meet the
strategy requirements of the different products. The properties
or construction projects are referred to the acquisition department by direct contact with companies, real estate brokers,
general contractors/full-service providers, or Credit Suisse RMs.
After a thorough review, the properties are submitted to the
Investment Committee and then placed in the right investment
vehicle by the Assignment Committee, whereby the conditions
for price negotiation are also defined. After submission of a
preliminary purchase price as part of a non-binding offer
(NBO), a thorough due diligence review is conducted, under
which the property is inspected and evaluated by various
(internal and external) parties. If the due diligence review is
satisfactory, after consent by the relevant executive bodies, a
binding purchase offer is submitted for a real estate portfolio.
On average, of 100 properties that are reviewed in the
acquisition process, five to ten are purchased. It typically takes
between two and six months to purchase a property. In 2013,
Real Estate Asset Management at Credit Suisse purchased
real estate in excess of CHF 1,225 million.
Strategy
Reporting
Controlling
Property
portfolio
Sell:
Properties are regularly
reviewed with regard to
performance and potential.
Identication of properties to
be sold.
Sales
Acquisition
Asset
Management
Optimize / manage:
Portfolio optimization through property
asset management, facility management
and construction
12
Buy:
Strategy implementation
through the acquisition
of properties after indepth
due diligence
Optimize/Manage
The product manager is responsible for managing the relevant
real estate product. This includes many activities, including
portfolio management. However, operational management
and the coordination of various processes on a day-to-day
basis are also part of the specified tasks. He or she also works
closely with Property Asset Management (PAM), which offers
support during the holding period of the properties. For each
property, a strategy or property-specific business plan is
created. Here, income and value-added potential are assessed
and plans implemented where sensible.
Further, PAM is responsible for the rent policy and its implementation, and is in charge of the operational real estate
providers such as managers or marketers. Last but not least,
this department also concludes master agreements, which
can use economies of scale to the fullest extent. Examples
include active master agreements for elevators, gas deliveries,
and white goods there are also pilot projects under way for
lighting, electricity, and solar facilities.
A key element in the optimization phase are renovations or
reconstructions. Each year, the construction team of Real
Estate Asset Management initiates some CHF 190 million of
investment volume in this area. Along with the supervision of
new construction projects, the total sales in 2013 were
CHF 990 million.
Among the largest new construction projects in recent years
was Sihlcity in Zurich, where Credit Suisse Real Estate Asset
Management is headquartered. Internationally, key projects
include the realization of the expansion to the Vancouver
E xchange and the Apoquindo in Santiago de Chile.
Sell
If the real estate strategy has low potential for instance, if
the costs of renovation cannot be compensated for by rent
increases or a property no longer fits with the investments
adopted strategy, it is offered for sale. In 2013, real estate
worth more than CHF 725 million was sold.
Strategy Review and Reporting
In regular intervals and based on clearly defined processes,
the strategy of each real estate portfolio is checked and the
results are shown in client reports. The transparency of
investment plans has greatly improved over the years and can
generally be reflected for each property using key figures
such as cost price, current market value, rental income, or
vacancy
Integrated, Comprehensive Approach for Real Estate
Along the entire value chain, Real Estate Asset Management
has access to more than 210 dedicated, internal real estate
experts. Management functions and core processes are
performed internally most supporting functions are
outsourced to renowned real estate service companies.
All of the various interfaces, processes, and staff involved in
the various global regions together comprise highly complex
investment processes. However, we feel that a professional,
globally networked platform is needed to successfully
implement a global real estate strategy.
The Sihlcity in Zurich, one of the largest real estate development projects of Credit Suisse in recent years
13
5.How to Invest?
Debt
Private
Direct mortgages
Real estate debt foundations
Private real estate debt funds
Public
14
2
high
Return
medium
Opportunistic
Value Add
Core+
Core
low
low
medium
high
Risk
15
Impressum
Cover image
Sydney 52 Golbourn Street
Source: Credit Suisse
Edition
1. edition: October 2014
Publisher
Strategies and Advisory
Credit Suisse Real Estate Asset Management
Lead Author
Zoltan Szelyes, CAIA, CFA
Real Estate Strategist Real Estate Asset Management
Email: zoltan.szelyes@credit-suisse.com
Other Authors
Ulrich Braun
Head Strategies and Advisory Real Estate Asset Management
Stephan Bruenner
Real Estate Portfolio Strategist
Sarah Leissner
Real Estate Analyst
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