"Location, location, location".
Location remains by far the most used word in the real estate world and is still the number one criterion for assessing real estate projects and risk. Popular terms in real estate are therefore usually directly or indirectly linked to this. For example, “circularity” is the new word in the real estate world today and it not only relates to materials, but also determines the degree of flexibility of your building, including its location.
But it’s not ALL about location.
While location remains an important aspect of valuation and risk assessment, there are also other things to consider in today’s market if you want to build a successful portfolio for the future. Real estate is and will, of course, remain a risk-related market. The correct assessment and valuation of assets and diversification in all aspects of your real estate portfolio is therefore crucial.
Here are three ways to help manage risks in your property portfolio in today’s market:
By anticipating the cycle: Today we are in a late, or extended, cycle of real estate when prices are high and an abundance of funds is available. This means that assets are often incorrectly priced and risks can be underestimated, which makes finding interesting risk-return opportunities more difficult. Creativity, adaptivity and a clear strategy will ultimately gain the upper hand in finding the right opportunities in today’s market.
Seeing the trends: As “circularity” becomes a bigger trend in regards to location, developers should be very considerate of this. A successful portfolio should be diverse in all aspects. Not only in its property types or locations, but in its knowledge centers, advisors, financing structures, strategies, partners and managers. A flexible and diverse portfolio will be essential to surviving the fluctuations of the market whether they be high or low.
Correctly assessing subjectivity: Assessing real estate and risk in the future will not only depend on the known hard data such as cash flows and location. Subjective characteristics such as the principles and mindset of the investor and his asset/property managers are often underestimated. Diversification in your asset portfolios also comes from how and whom you invest with. Especially during extreme highs or lows in the market, the subjective aspects of a property and its investors can be as important as the hard data.
Future Proofing Your Risks and Valuations
Today we are looking for solid locations with a story behind them, where the diversity of the environment can be incorporated into the building. By responding quickly to the needs of the immediate environment we can protect the investor through that level of flexibility and adaptability. By getting creative, defining a clear strategy and staying adaptable when it comes to the cycle, trends and subjectivity of today’s market you will be future proofing your portfolio against risks, seeing correct valuations and finding the right opportunities.
Still have questions?
Then come meet Tobias Schwagten, our Chief Investment Officer, and the rest of the Whitewood team at the Provada Real Estate event at the RAI Center in Amsterdam on June 4th, 5th, and 6th. You can register for free here! We look forward to meeting you there and answering any of the questions you may have regarding risk and property valuations.