Real Estate Finance and Economics: A Guide to Securing Finance for Real Estate Project Development in Developed and Emerging Economies PDF
Preview Real Estate Finance and Economics: A Guide to Securing Finance for Real Estate Project Development in Developed and Emerging Economies
Contributions to Finance and Accounting Lucy Ogbenjuwa Real Estate Finance and Economics A Guide to Securing Finance for Real Estate Project Development in Developed and Emerging Economies Contributions to Finance and Accounting The book series ‘Contributions to Finance and Accounting’ features the latest researchfromresearchareaslikefinancialmanagement,investment,capitalmarkets, financial institutions, FinTech and financial innovation, accounting methods and standards, reporting, and corporate governance, among others. Books published in this series areprimarily monographs and edited volumes that presentnew research results, both theoretical and empirical, on a clearly defined topic. All books are publishedinprintanddigitalformatsanddisseminatedglobally. Lucy Ogbenjuwa Real Estate Finance and Economics A Guide to Securing Finance for Real Estate Project Development in Developed and Emerging Economies LucyOgbenjuwa LondonSouthBankUniversity London,UK ISSN2730-6038 ISSN2730-6046 (electronic) ContributionstoFinanceandAccounting ISBN978-3-031-21903-0 ISBN978-3-031-21904-7 (eBook) https://doi.org/10.1007/978-3-031-21904-7 ©TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicensetoSpringerNatureSwitzerland AG2023 Thisworkissubjecttocopyright.AllrightsaresolelyandexclusivelylicensedbythePublisher,whether thewholeorpartofthematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseof illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similarordissimilarmethodologynowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors, and the editorsare safeto assume that the adviceand informationin this bookarebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor theeditorsgiveawarranty,expressedorimplied,withrespecttothematerialcontainedhereinorforany errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional claimsinpublishedmapsandinstitutionalaffiliations. ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Foreword Realestatefinanceiscertainlynotanareainwhichfewsetfoot.Whatislackingis that “no comprehensive framework is presently available that guides managers involvedwithsecuringfinanceforrealestateprojectdevelopment”.Acomprehen- sivetoolkitisthereforedevelopedtoassistmanagersatrealestatefirmstosecurereal estatefinancing. Thebookisthereforestructuredinsuchawaythattheaimandthepurposesare fulfilledefficaciouslyandconvincingly.Followingthesubstantialandall-inclusive literaturereviewcoveringrealestatemarketsindevelopedandemergingeconomies, financing options, and the key topics of the toolkit, the methodology section pro- videsadetailedexplanationoftheprocess,thedesign,thetechnique,andthevalidity andreliabilityofthemethodology.Thecoreofthebookisepitomizedintheformof six“tools”formanagerstosecurerealestatefinanceforprojectdevelopment:critical success factors, challenges and opportunities, key decisions and processes, skills, knowledgeandcompetences,andmanagementcareerpath,training,andeducation. Theeffectiveselection,assembling,and,moreessentially,theemploymentofthese toolswilltothemostextentdeterminethesuccessoffinancingandtheproject. In short, three issues protruded from the structure: comprehensive toolkit, man- agers at real estate firms, and real estate financing. One of the most celebrated achievements of this research, and the book, is the wide range of “tools” that are expedientandindispensableforrealestatefinancing.Theyhavebeenfound,honed, and shovel-ready. However, the success of financing depends on the degree of understanding, possession, and development of the tools, and it is the managers at realestatefirmswhoneedthemandusethem. The unique characteristics of real estate and the special business model of real estate development—developer and contractor, general contractor and sub-contractor—exemplify the vital roles played by managers, especially concerning the activities of project funding. Real estate development is a type of compact business, so the competence and capability of managers will dictate its survival and prosperity of it. Real estate development is a type of capital-intensive businesswitha needforadequate capital supply andcirculation resemblingtheair v vi Foreword andwatertothehealthofthehumanbody.Forrealestatedevelopers,everyactivity boilsdowntomoney,equity,anddebt,theaccesstowhichislargelydependenton managers. RealEstateFinance&Economics, GuGuowei LondonSouthBankUniversity, London,UK Preface Thisisthefirstbookthatpresentsacomprehensivetoolkitforsecuring financefor real estate project development. Lucy Amuda Ogbenjuwa examines the real estate marketsinthedevelopedandemerging economiesofGermany,theUK,theUSA, China,Nigeria,andSouthAfrica. The findings suggest that the developed economies all have similar finance options for real estate project development, with bank loans significantly used by all of them. Similarly, emerging economies’ managers also have access to debt fundingforrealestateprojectdevelopment.ManagersinChinahaveasmuchaccess todebtasthoseinthedevelopedeconomies.Incontrast,Nigerianmanagershavethe least access to bank loans, private debt finance, and REITs for real estate project development. The findings demonstrate that financiers in both the developed and emergingeconomiesrequiresimilarcriteria tosecurefinanceforrealestate project development. The top-ranked criteria at the aggregate level include details of the proposed project, contractual documents on land acquisition/land title, loan agree- ment,feasibilityreport(economicandtechnicalfeasibility),andcollateral. Thefindingssuggestthatthecriticalsuccessfactorsforsecuringfinanceforreal estate project development are similar and often the same for both developed and emerging economies. Arguably, this is a result of the integration and the global nature ofthe financialmarkets, which, toa great extent, dictatethe critical success factors. The top-ranked critical success factors for both regions are track records, access to land, cash flow, the relationship with financiers, and access to market (demand). The book revealed various challenges associated with securing finance for real estate project development in both developed and emerging economies; however, thedominantchallengescommontomanagersinbotheconomiesareaccesstoland, collateral, and rising interest rates. The opportunities for securing finance for real estateprojectdevelopmentbymanagersinbothdevelopedandemergingeconomies includegrowingdemandinthepropertymarketandlong-standingrelationshipswith financiers. However, managers’ dominant opportunities in developed economies include government support, the international market, and an abundance of both vii viii Preface equityanddebt.Factorsmentionedbymanagersintheemergingeconomiesinclude opportunities such as off-takers/private equity and developers combining the con- structionofindustrial,commercial,residential,andhealthcarecentres. The study revealed there are no generally accepted and documented decision- making processes for securing finance for real estate project development for both the developed and emerging economies; however, the findings suggest that the processes are similar. Arguably, the similarity in both economies’ processes is a resultofpolicycoordinationbydifferentcountriesandbodiesaimedatmakingthe financialmarketssaferandmoresustainable. The findings show that the managers in the real estate sectors of both the developed and emerging economies have some similar skills for securing finance forrealestateprojectdevelopment;theseincludeanalyticalskills,selling/marketing skills,relationshipmanagementandmonitoringskills.Incomparison,thediffering skills for managers in developed economies include the usage of the Internet to improve their profiles, financial modelling, global networking, and hedging skills. The skills of managers in emerging economies include the ability to lobby and connecttopeopleemotionally. The study also shows that the financial knowledge and competences that the managers in the real estate sector used for securing finance for real estate project development are varied. Managers in both regions considered finance options, market intelligence, financial accounting basics, and debt literacy necessary. The top-rankedcompetencesconsideredimportantbymanagersforsecuringfinancefor real estate project development include leadership, managerial competence, result- oriented ability to analyse the market, and legal competences. A comparison of skills,knowledge,andcompetencesformanagersinthedevelopedeconomiesdoes not show a strong divide between both regions arguably, because they both have similarplatformsfortrainingandeducation. The findings also show that the managers had varied career paths, educational backgrounds,andapproachestosecuringfinanceforrealestateprojectdevelopment. Thecareerpathsshowlateralmovementbothwithinandacrossindustries.Thework experience of most of the managers in the developed economies shows a strong finance background as most of them have worked in banks, insurance companies, and pension funds before moving into the real estate sector. They also have inter- nationalworkexperienceintherealestatesectorsofothercountries.Severalofthem havedegreesandhigherdegreesinfinance,accounting,economics,estatemanage- ment, and property investment. Although the real estate managers in emerging economieshavedegreesaswell,mostofthemstartedtheircareersintherealestate sector,wheretheyhaveremained.ManagersinChinahavesomeinternationalwork experience.However,managers’realestateexperienceinNigeriaandSouthAfrica is mainly country-specific, and the majority of them do not have career paths that have passed through the finance sector like their counterparts in developed econo- mies.AfewoftheSouthAfricanmanagershavefinancedegrees. In contrast, managers in Nigeria mostly have degrees in real estate’s technical aspects,suchasquantitysurveying,architecture,andestatemanagement.Thestudy also showed that most US managers have real estate work experience, but only Preface ix withintheUSA.Thereisnocleardividebetweentrainingandeducationapproaches for developed and emerging economies. However, continuing professional devel- opment and computer-based training rank top for both developed and emerging economies. Thisstudy developed a toolkit forsecuringfinanceforreal estate projectdevel- opment.Thetoolkitistosupporttherealestatemanagerinsecuringfinanceforreal estateprojectdevelopmentandservingasaguideintrainingandeducationforboth academiaandtheindustry.Thetoolkitismadeupofsixcomponentsasfollows: 1. Inventory of finance options and criteria for securing finance for real estate projectdevelopment. 2. Aconceptualframeworkforanenvironmentalscanforsecuringfinanceforreal estateprojectdevelopment. 3. Aprocessmapforsecuringfinanceforrealestateprojectdevelopment. 4. Aninventoryofskills,knowledge,andcompetencesforsecuringfinanceforreal estateprojectdevelopment. 5. A conceptual framework for a career path for securing finance for real estate projectdevelopment. 6. Aconceptualframeworkfortrainingandeducationforsecuringfinanceforreal estateprojectdevelopment. London,UK LucyOgbenjuwa
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