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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, the internal experts also assess the properties with regard to whether a renovation or a complete repositioning via new construction is more expedient.
February 2, 2022
Ecological 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.
In past years, Global Real Estate has continuously reviewed the portfolio of over 1,300 properties with regard to utilization reserves. That's because, over the years, the needs of tenants and urban development requirements have changed, in addition to ecological and societal requirements. From an investor perspective as well, the focus is on the optimization of long-term returns – for instance, through densification, repositioning, or conversion, in order to minimize any 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 areas, 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 the in-depth analysis and taking into consideration the aforementioned 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 for investors long-term, sustainable returns," 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 question 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 for this there must be a floor plan for a promising redevelopment," 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 that of objections and 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 ecological 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 having the entire real estate portfolio is to be carbon neutral by 2040.
Regardless of whether a property is being renovated, repositioned, converted, or newly constructed, it is essential that tenants be informed early and transparently. After all, Global Real Estate wishes to offer good solutions to the respective existing tenants. In case of a fairly standard wet room and kitchen renovation or possibly an extension of outdoor spaces, most tenants normally remain in the building during the construction phase – even in their own apartment, if possible. Sometimes, there is also the option of temporarily moving into another apartment that has become available.
In case of a new positioning or a new construction, the tenants have to move. Martin Munz says: "Generally speaking, we notify existing tenants of the planned construction start 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 builder-owners and investors now pay great attention to early and transparent communication. "We seek a dialogue with all stakeholders so that we can receive their concerns early on and take them into account as much as possible."
From idea to implementation: Project development includes a variety of different steps that significantly differ from property to property. Three examples show how location, utilization potential, and legal directives impact project development.
Forward-looking and sustainable: Those are the characteristics that distinguish the new construction project that will appear in coming years on the banks of the Birs. Visually, it fits in perfectly with the image of the municipality. In the three buildings, 146 apartments of different sizes and types are planned. The units, designed to be barrier-free, meet the Minergie1 standards and those of the greenproperty2 Gold quality label.
The available space – newly acquired through densification and mostly publicly accessible – offers green spaces, additional planted trees, and generous passages to the Birs.
For this project, a district planning procedure was necessary. The municipality and its population were thus able to influence the design of the planned residential complex and a vast majority confirmed the district plan during their ordinary municipal meeting. The district plan ensures that the new buildings create additional and diverse housing, implement high sustainability criteria and mobility requirements, and are also ideally connected to public transportation. The deconstruction of the existing buildings is planned for the fourth quarter of 2023.
1 Swiss construction standard for new and modernized buildings.
2 Swiss quality seal of Credit Suisse Asset Management for sustainable real estate.
Formerly an important artery of the city, now a popular pedestrian area: the Rue de Bourg in the heart of Lausanne. In the past two years, an elegant new building has appeared here. The starting point for project development was an urban planning and historical study to analyze the site-specific characteristics and the full life cycle of the existing property. The new positioning was defined based on this.
The new building was developed in close coordination with city historic preservation authorities. The materials used ensured optimal integration in the historic environment. For example, the facade design of the building side facing the pedestrian area is based on the traditional architecture of the Rue de Bourg. The dense construction with buildings close to each other also required various special precautions for the deconstruction of existing structures and the construction of the new elements. For instance, the former partition walls of the building also supported adjacent buildings and their partly medieval foundation walls.
Consequently, an impressive wooden construction had to be created for the upper floors and bracing made of steel beams for the lower floors in order to sufficiently support the existing, decrepit, and inhomogeneous walls. The challenging construction work was completed in July 2021. The result was a high-quality new building with contemporary room heights, acoustically standardized, attractive commercial, administrative, and residential spaces, as well as an improved energy balance sheet.
Built in 2001, the office property in Manchester's business district will be completely renovated from early 2022 until probably the end of 2023. The renovation concept developed by Global Real Estate plans for a modern, high-quality, and sustainable office property that takes into account the needs of the local market. The microlocation of the property has already improved thanks to new developments in the area.
The six-story office building has a lot of surface potential, which is why the project developers are planning two additional stories. Furthermore, the existing spaces will be made more efficient. Overall, both measures enable 22% more space and, accordingly, more rental income. The target is for the building to receive BREEAM Outstanding certification.
Source: Credit Suisse, unless otherwise specified.
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