Heidi Falkenbach

Market selection for international real estate investments

This paper studies the market selection criteria in international real estate investments. It presents the results of a questionnaire study among internationally investing property investors in Europe. The results indicate that the most important factors for market selection are safety of property rights and title as well as expected return on property investments. Also other factors describing institutional set‐up and market maturity were found to affect the market selection process, whereas the correlation of the property returns was not found to have a large impact on market selection.

DIVERSIFICATION BENEFITS IN THE FINNISH COMMERCIAL PROPERTY MARKET

The Finnish commercial property market internationalised rapidly in the beginning of the 21st century. According to the portfolio theory and previous research on international property investments, the main motivation factor driving international real estate investments is the possibility to reach diversification benefits. The paper discusses the diversification benefits offered by the Finnish property market in its early years of internationalisation. As international real estate investors in the Finnish property market include investors with both real estate only, as well as mixed‐asset portfolios, the diversification benefits are studied both in terms of a Finnish mixed‐asset portfolio, as well as international real estate portfolio.

Risk management in public land development projects: Comparative case study in Finland, and the Netherlands

Public land development is an approach where the public authority acquires land for development, services the land with public infrastructure, and transfers the serviced building plots to private building developers or self-developing end-users. Motivations to use public land development can be divided to planning goal related motivations and financial motivations. In this paper, we study management of public risks related to the use of public land development by analysing case studies located in Finland and the Netherlands, countries known to have strong tradition in public land development. Our findings indicate that, whereas public land development has efficiencies in managing the risks related to the achievement of public planning goals, the management of the financial risks related to the public land development approach can be remarkably difficult even in countries with wide experience in public land development.

Performance of Non-Core Private Equity Real Estate Funds: A European View

This article examines the performance of European private equity real estate (PERE) funds from 1998 to 2009 using both absolute and relative performance metrics. The authors find that PERE fund absolute returns were significantly dragged down by the financial crisis and, on average, delivered only weak absolute returns. In relative terms, they find that private equity real estate funds underperform the public real estate equities market. They also evaluate the extent of systematic valuation biases of interim fund net asset values and find some evidence of systematic undervaluation of almost 20% of the fund investments, which, when taken into account in performance evaluation, substantially improves the returns.

Liquidity of European real estate equities: REITs and REOCs

Listed real estate companies can be divided into two categories: real estate operating companies (REOCs) and real estate investment trusts (REITs). REOCs have been around for quite a while, whereas REITs are a somewhat new phenomenon in Europe, the main differences pertaining to permissible activities and taxation. This paper studies the relative differences of REOCs and REITs in terms of liquidity: Also asset returns, volatility and correlation to other equities are assessed. The liquidity tests performed reveal REITs to be significantly more liquid than REOCs, potentially due to restrictions regarding REIT ownership structure. Ceteris paribus, superior REIT liquidity implies REITs constitute a preferred investment vehicle.

The green preferences of commercial tenants in Helsinki

Purpose – The purpose of this paper is to find out the green preferences of corporate occupiers in relation to their occupied offices. The study aims to focus on the preferences of the end‐users at the organisational level. It also aims to study the relative importance of these preferences against one another and to seek the differences between respondent groups.Design/methodology/approach – The survey is a case study approach concentrating on the situation in the Helsinki Metropolitan Area (Finland) in the summer of 2009. The survey was conducted as an internet‐based questionnaire with e‐mail invitations. The importance of nine given green attributes of the office buildings were ranked on a five‐point Likert scale. A total of 90 responses were analysed.Findings – The results show that location achieved the highest importance, even though it was rated in terms of the environmental sense only. The energy efficiency of a building was ranked second. The indicative results suggest that industry sector and the...

Development-led planning practices in a plan-led planning system: empirical evidence from Finland

ABSTRACT Planning systems are generally divided into plan-led and development-led systems. However, it is quite common that the planning practice follows development-led planning although the planning system would structurally be plan-led. To study how development-led planning affects the implementation of large-scale urban development projects, we conducted a cross-sectional survey in Finland – a country with a hierarchical setting of legally binding zoning plans which can be prepared by following either plan-led or development-led practices. The survey respondents were civil servants managing implementation of large-scale urban development projects. Our results quite surprisingly suggest that development-led planning may cause the projects to become more vulnerable to property market uncertainty compared to the projects following the plan-led practises. These results challenge the usual output-based legitimation of development-led planning to some extent.

Financing major repairs in apartment buildings through infill development: Exploring views and benefit requirements of the owner-occupiers

Purpose The purpose of this paper is to study views of owner-occupiers concerning infill development as a mechanism for financing major repairs in apartment buildings and financial benefits they require from the infill development for accepting it near their homes (on the plot of their housing company). Design/methodology/approach The data used draws upon a survey of 894 respondents concerning residents’ views on infill development in Finland. The required financial benefits from the infill development were questioned in both relative proportions of the expenses related to major repairs and concrete monetary sums. Findings First, the findings indicate that the financial benefits owner-occupiers require in order to accept infill development are significant, covering about two-thirds of the costs of major repairs during following ten years or over 75 percent of an (imagined) upcoming pipeline repair. Second, approximately one-fifth of the respondents regard that no economic benefit is enough to make them support infill development. Third, people’s decision-making concerning infill development is complex, involving also many other factors than monetary. Practical implications This paper provides insight into the feasibility of infill development as a means to finance major repairs from the perspective of owner-occupiers. The paper has strong policy implications as it highlights the significance of the public authorities and their policies in enabling the infill development. Originality/value This is the first academic study to focus on owner-occupiers views and financial requirements for the infill development as a means to finance major repairs in apartment buildings.

Modelling and forecasting central Helsinki office rents

Office market modelling has attracted a mounting amount of interest among researchers and practitioners during past decades. Growing research activity in the area is not surprising considering the importance of rent on property values. Nonetheless, very little quantitative research on Finnish rental markets has been carried out. The objective of this study is to respond to that lack of research by examining office rent determination in the Helsinki central business district (CBD) in reduced form single equation context. We discover that changes in central Helsinki office rents are subject to variations in new office completions and changes in the added value of services sector. As historical fit does not necessarily translate into a satisfactory predictive fit, the forecasting adequacy of the final model is also tested by constructing out of the sample forecast over 2007-2009. We find that the model outperforms two naA¯ve forecasting methods, but fails to perfectly trail the actual index.

European private equity real estate compliance under the AIFMD

Purpose The purpose of this paper is to investigate the effect of Alternative Investment Fund Managers Directive (AIFMD) on European private equity real estate (PERE) industry. Design/methodology/approach The paper draws upon a set of 12 semi-structured interviews with European PERE fund managers to explore their views on the reporting and risk management under the AIFMD, the costs and benefits associated with the AIFMD compliance and the effect of the AIFMD on European PERE industry. Findings A “one size fits all” approach adopted by the AIFMD results in difficulties in understanding and implementing the AIFMD requirements by PERE managers. Due to the limited applicability of the AIFMD risk reporting requirements to PERE funds, PERE managers have developed their own risk metrics, which they report internally. The formalization of risk management process and the separation of risk management function constitute the two most significant changes experienced by PERE managers. The managers recognize a positive branding effect from the authorization and improved risk awareness in their organizations due to the AIFMD. Research limitations/implications The current paper focuses on PERE fund managers and does not address other real estate funds falling under the AIFMD. Practical implications PERE fund managers require feedback and guidance from authorities and best practice recommendations from industry organizations to enable proper compliance. Industry-specific reporting requirements would benefit both the industry players and authorities. Originality/value Given the broad scope of the AIFMD, it is of interest to look at how PERE fund managers have adapted to the regulatory change.