Article
The real estate portfolio of Credit Suisse Asset Management's Global Real Estate unit is regularly reviewed for its optimization potential. In addition to the regular, value-maintaining renovations, internal experts also assess the properties with regard to whether a renovation or a complete repositioning via new construction is more expedient.
January 27, 2022
Environmental optimizations are now often the trigger for larger renovation projects. These include, for example, new heating systems, photovoltaic systems, or better building insulation. Global Real Estate has taken such considerations into account in its sustainability strategy for many years.
Global Real Estate has continuously reviewed the portfolio of over 1,300 properties with regard to utilization reserves over the years. That's because the needs of tenants and urban development requirements change over the years, as do environmental and societal requirements. From an investor perspective, the focus is on optimizing long-term returns – such as through densification, repositioning, or conversion, in order to minimize vacancies and thus create added value for investors.
During the preliminary examination of the property, the internal Construction and Development department analyzes, among other things, the general accessibility situation of the property, the existing housing floor plans, the condition and design of wet rooms and kitchens, the outdoor spaces such as balconies and green spaces, as well as the fulfillment of sustainability standards, in order to ensure the long-term rentability of the property and therefore long-term returns.
After an in-depth analysis and consideration of the above aspects, the project team and the fund manager decide whether the property should be renovated or completely repositioned.
"From our perspective as developer, it is important that the new property resonates with the market and thus opens up long-term, sustainable returns for investors," says Martin Munz, Head of Development & Construction Switzerland at Credit Suisse Asset Management Global Real Estate. A new positioning – meaning a new construction – usually only comes into the picture when there is an additional utilization potential of at least 50% and an alignment with market rent prices. "Otherwise, we focus more on renovation, though there needs to be the footprint for a promising reconstruction here," adds Munz.
At first glance, the high utilization potential may seem like a major hurdle. However, the new positioning of a building is complex, requires significant investment, and carries risks, such as from objections and the resulting project delays.
The age of the property is also a decisive factor. "For older buildings, renovation is often not worthwhile since excessive intervention would be required – especially due to environmental and technical requirements for modern buildings," says Munz. Therefore, in such cases, a new building is often built. After all, Global Real Estate is on a clear path to CO2 reduction with the aim of the entire real estate portfolio being carbon neutral by 2040.
Regardless of whether a property is being renovated, repositioned, converted, or newly constructed, it is essential to inform the tenants transparently and at an early stage. After all, Global Real Estate wishes to offer good solutions to the existing tenants. In case of a fairly standard bathroom and kitchen renovations or possibly an expansion of outdoor spaces, most tenants normally remain in the building during the construction phase – even in their own apartments, when possible. Sometimes, moving temporarily into other apartments that have become available can be an option.
Tenants do have to relocate for a new positioning or new construction. Martin Munz says: "As a rule, we notify existing tenants about the start of planned construction sufficiently in advance. This gives them enough time to get organized or look for a new apartment, if necessary." Global Real Estate or the respective management company supports them as best as possible in this regard and is also flexible in terms of notice periods.
As with any construction project, the aim is to get the neighborhood and other interested parties involved at an early stage. Munz notes that principals and investors are now paying great attention to early and transparent communication. "We seek a dialogue with all stakeholders so that we can hear their concerns early on and take them into account as much as possible."
