Jon Robinson

Environmentally sustainable development: a life-cycle costing approach for a commercial office building in Melbourne, Australia

A range of property and construction options is analysed using standard life-cycle costing methodology. The options are to renovate the existing building, buy an alternative building and renovate, and buy a development site and construct a new building. The do-nothing option and a hypothetical option to construct a new building on an ideal site are analysed as benchmarks. The results show that the optimum option is to buy a suitable site and construct a new building and that the least sustainable option, in the case study, is to stay in the existing property and renovate the building. Although staying in the existing building and doing nothing carries the lowest financial cost, energy consumption and greenhouse emissions are significantly worse than for the alternative options.

Sustainable Property – The Future of the New Zealand Market

Abstract The New Zealand property industry has recently been introduced to the concept of sustainability. Even though targeted measures have been taken by the New Zealand Green Building Council and government, there is considerable hesitation and scepticism existing in the property market from both an investor’s and a building owner’s perspective. This paper discusses the results of an investigation into market perception of sustainable buildings from the investment community in New Zealand. Property investors from New Zealand were surveyed about their perception of sustainable buildings in New Zealand and their actions with regards to their own commercial portfolios, as well as the relationship between sustainability and property investment decisions.

Momentum Profits in Australian Listed Property Trusts

Abstract This paper examines the profitability of momentum trading strategies in Australian listed property trusts (LPTs). Monthly value-weighted momentum portfolios are formed using the monthly excess returns of LPTs for the period from 1990 to 2005. Overall the findings confirm that a momentum trading strategy in Australian LPTs is a profitable strategy. More specifically, momentum strategies are profitable after adjusting for variance and downside risk where the momentum returns substantially outperform the benchmark. An analysis using different study periods confirm the findings about momentum. The practical implication from this study is that investors can generate substantial abnormal returns by adopting a momentum trading strategy, particularly with a long strategy (i.e. winner portfolios).

A brief history of the Australian discounted cash flow practice standard

The increasing complexity of investment properties has necessitated the application of more advanced valuation and analysis techniques. Following the property cycle of the 1980s/1990s, and the recommendations of several reporters, the DCF method has been promoted in Australia for certain income‐producing properties. The Australian Property Institute disseminated an information paper in 1993 that discussed DCF and suggested a performance approach to its application. Following this, a practice standard was produced in 1996 that was highly prescriptive but which contained a number of confusing passages. With the benefit of hindsight, its publication was premature and it was withdrawn from circulation. A rewrite was commissioned and an exposure draft was circulated in early 1999. It has been prepared as a performance standard in which the valuer is called on to follow a method while disclosing the specifics. However, a number of considerations remain to be finalised, for example, the application of the term cash flow to net operating income, income after finance and income after finance and tax. The preparation of standards is an evolutionary process and the present coverage of the DCF practice standard reflects the market in which it applies.

Plant and equipment acquisition: a life cycle costing case study

Uses a life cycle costing case study to describe a technique useful to facilities managers in a decision about the acquisition of plant and equipment. The case study investigates floor coverings in commercial buildings. Provides detailed financial calculations and incorporates a number of innovations. First, all the costs and benefits are included; life cycle costing is commonly promoted on a cost‐only basis, but all building expenditure generates a value effect and this must be measured in any meaningful study. Second, the choice of discount rate may be relieved by either sensitivity analysis or by the calculation of a “break‐even” discount rate; discusses these. The results show that vinyl is nearly 50 per cent more expensive than carpet and that the replacement of vinyl in an existing building with carpet has a payback of about three years.

Commercial lease terms and the property cycle

The importance of taking corporate real estate decisions given a cyclical property market is discussed and illustrated. Ownership and leasing are described. Commercial lease terms are discussed in the context of the recent property cycle in Melbourne, Australia. A case study shows that the profitability of business units can be severely affected if the lease fundamentals, particularly the rent review mechanism, are misunderstood.

An Investigation on the Risk Perceptions of Australian Property Fund Managers

Abstract Recent empirical and analytical studies have demonstrated that downside risk appears as an intuitively appealing risk measure in which it is more consistent with investors’ behaviour. Conversely, qualitative studies into the behaviour of investors, particularly real estate investors, have been relatively limited. This study seeks to address this shortfall and aims to examine the perceptions of property fund managers towards risk. A survey was conducted to investigate the risk perceptions of property fund managers and determine whether they only require compensation for bearing with higher downside risk. The acceptance level of downside risk is also examined. The findings reveal that downside risk is more consistent with how investors individually perceive risk. However, there is also a gap between theoretical assertions and practice in which downside risk is not commonly used in the practice. The results give an insight into the knowledge base of property investors towards risk, particularly downside risk.

Accommodation strategy: a case study in facilities planning and management

Concerns the real estate holdings of a recently privatized utilities business. The holdings consist of two leasehold business office premises and 13 freehold line depots. The proposed strategy is to rationalize these with regard to the forecast future growth of new services in the district. The strategy comprises an office scenario and three service depot scenarios. Options are tested using a form of cost‐benefit analysis. The disposal of surplus properties is to assist in realizing the strategy. Uses a case study of the office scenario to describe the financial analysis. The options include do nothing (i.e. continue to use the existing depots in several locations ‐ the status quo); lease single premises; buy premises (i.e. an existing building) and build new premises (i.e. buy a site and construct purpose‐built accommodation). The lease option and the buy option are illustrated. Employs after‐tax discounted cash flows to model initial costs, recurring costs (rentals where relevant, energy costs and other operating costs) and annual savings (reduced payroll due to operating efficiencies). Net present costs are calculated in order to rank the options and these results cleary show that the lease option is preferable to the buy option.