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10 Hidden Values In CRE Organizations and How to Exploit Them
In these tumultuous times for the commercial real estate business, it makes sense for CRE investment organizations to step back and examine the hidden values ingrained in their organizations. Especially today, since transaction volume is still down 70% since the Fed began raising interest rates in March 2022. There are many hidden and opaque tenets in management, business models, operations, and financial structures that have inherent value within a CRE company. Managers of CRE firms must know of or at least be cognizant of these values to exploit them and further enhance the worth of their real estate assets and business. Ten of these hidden variables are discussed below.
1. Optionality Throughout the CRE Organization
This includes, using special purpose entities to hold properties, using interest swaps and collars to protect against interest rate risk, using nonrecourse debt that provides a “Put” back to the lender, rights of first refusal and buy-sell agreements, using an UpReit structure which allows sellers to defer their capital gain on property sales to an UpReit and land banking by homebuilders. Optionality can reduce risk, increase return, and, in general, allow for various trade-offs and real option choices.
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