Property-asset managers need to know more

Posted On Monday, 15 September 2003 02:00 Published by
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Whereas the number of property-asset managers is growing, the level of expertise being demanded of such specialists is also increasing.

Whereas the number of property-asset managers is growing, the level of expertise being demanded of such specialists is also increasing. The move towards establishing property funds in excess of R1-billion is sound trading philosophy, but funds of such a size demand highly skilled and focused managers.


Firstly, the cash/property holding mix must be optimal to ensure sufficient liquidity for return requirements and investment opportunities as well as ensuring that the fund is optimally invested. Determining the accurate exit point and strategy from a property is as important as making the correct investment decision.


Secondly, the financial mix of the equity and gearing components needs to be strategised to ensure that shareholders obtain their required return while the property sustains value growth.


Equity value is eroded when the property has to allocate too much of its gross income to interest payments and maintenance, or if the tax liability is not well managed.


A third consideration is the tenant-sector and tenant-company mix of a property portfolio. Property asset managers must identify the sectorial representation throughout their (enlarged) portfolios as well as ensure that their marginal tenants are correctly credit-profiled. Where necessary - and possible - risk mitigating action should be implemented.


The process starts, however, by identifying the sectors represented in the portfolio and the marginal tenants.


This need not be a difficult task. A few new fields in a computerised management system and a carefully constructed questionnaire-checklist for each tenant can quickly result in a graphical representation of the sector - and credit profile-mix in a portfolio.


In addition to the need of knowledge of property finance, property-asset managers need to have an understanding of and appreciation for the asset and the market in which this asset is expected to perform. Fixed properties must be managed lest they become obsolete and, subsequently, vacant.


This means property asset managers must ensure that they are abreast of trends, market conditions and the potential of each property within their portfolio to succeed or fail in meeting property requirements of the market.


 - Information from Jonathan Smith, director of Courtwell Consulting. Tel 011-888-5978 - The Star

Publisher: The Star
Source: The Star

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