Real Estate Business Origination: The Cure Against Uncertainty

Real Estate Business Origination: The Cure Against Uncertainty

Today, what decision makers value most is having accurate information and a methodology that allows them to move forward with their projects.

Today is not the time to stop, but to make sure that we are doing things right. This is not the time to stop; but to understand the new normal, and to align our products to the new market needs.

A successful business in the midst of uncertainty is possible, using the right method and information. That is why at Tajarat properties we have developed a Real Estate Business Origination methodology, specially designed for those who seek to move forward with their projects.

WHAT IS THE ORIGINATION OF REAL ESTATE BUSINESSES?

The Real Estate Business Origination is the process with which we ensure that the project is viable in all its aspects, with special emphasis on the commercial and financial areas.

We offer this service to real estate developers and landowners who seek to have the maximum certainty that their investment of time and resources will give them the results they expect.

This process goes from the conceptualization of the project to its financing and commercialization, and is divided into two phases:

PHASE 1: PLANNING

During the planning phase, the goal of Origination is to create a project that is financially viable and commercially successful.

For this, three main activities are carried out:

DEFINITION OF THE BEST PRODUCT

The Optimal Product Definition consists of conducting an in-depth analysis of the unsatisfied demand in the area and developing product alternatives to select the one that best suits the financial expectations of the key stakeholders.

VALIDATION OF THE ARCHITECTURAL PROJECT

Once you have an Optimal Product, it is time to approach the architecture office to develop the conceptual project.

During this phase, in Business Origination it is necessary to validate the project from two perspectives:

  • Technical audit: consists of the validation of the efficiency of the spaces to ensure the profitability of the business.
  • Qualitative validation: it is a series of strategies to confirm that the target market will accept the product and the price that are defined.

MARKETING AND FINANCING STRATEGIES

Now that we have a financially and commercially validated Optimum Product, the next step is to develop the strategies to obtain the necessary financing to carry out the development.

To do this, the first thing we must do is design the Business Model and the capital structure of the project, that is, the percentage of participation of each of those involved in the business.

Subsequently, we will develop the Capitalization and Financing strategy, in which the way in which investors will be invited is detailed, as well as the way in which the bridge loan or any other type of financing will be requested from banking institutions.

At this stage, the Business Plan is also developed, which includes all the strategies to sell the product successfully, including:

  • Price lists
  • Increase between each list.
  • Absorption or units expected to be sold per month
  • Promotions and discounts
  • Payment Methods
  • Media plan

PHASE 2: EXECUTION

During the construction of the project, the objective of the Real Estate Business Origination is to confirm that the plan is being carried out correctly.

For this, the team includes two types of control in the execution:

COMMERCIAL CONTROL

It seeks to keep those involved on the commercial progress of the project, and provide constant updates of the most important market indicators , such as:

  • Offer update
  • Competitor analysis
  • Prices
  • Average absorption of the area

FINANCIAL CONTROL

It seeks to ensure that the business remains profitable, taking into account any changes or updates to the project.

To achieve this, a monthly report is made that includes a summary of the main business indicators, as well as the financial status of the project.

Likewise, this control ensures that the Business Plan is consistently updated every six months.

With this methodology we seek to make the most of the potential of each real estate business in which we participate. If you are one of those who prefers to keep moving and not stand still, contact us.

We are confident that together we will be able to carry out a commercially and financially successful project.

Real estate outlook: behavior of the vertical housing business as of 2Q-2020

Contrary to what many expected, the housing sector has had a more or less stable behavior so far this year. The most affected segments were Social Housing and Medium Housing, while Residential, Residential Plus and Premium Housing have had little or no variation in their sales.

These are some of the results of our study, in which we analyze the demand, behavior and sales of housing in the three most important metropolitan areas of the country.

BEHAVIOR OF DEMAND AND SALES OF VERTICAL HOUSING IN METROPOLITAN AREAS OF MONTERREY, GUADALAJARA AND CDMX

In general, the lower socioeconomic levels have been the most affected in terms of job and income loss. This is why the demand in the Social Housing and Middle Housing segments has suffered considerable reductions.

On the other hand, the Residential, Residential Plus and Premium segments have had little or no variation in demand, since these socioeconomic levels were the least affected by the current situation.

CONCENTRATION AND PRICES PER M2 BY MUNICIPALITY

In Nuevo León, the highest concentration of vertical housing supply is found in the municipalities of Monterrey, San Pedro and Santa Catarina. The prices per square meter of sale range from $ 30,000 (San Nicolás) to $ 66,000 (San Pedro).

In Jalisco, the concentration of vertical housing is divided almost equally in the municipalities of Guadalajara and Zapopan. Sales prices range from $ 38,000 (Zapopan) to $ 45,000 (Guadalajara).

On the other hand, in CDMX the highest concentration of vertical housing is in the Benito Juárez and Álvaro Obregón delegations, which account for 76% of the entire vertical housing supply in the metropolitan area. As for sale prices, these range from $ 43,000 (Azcapotzalco and Coyoacán) to $ 94,000 (Miguel Hidalgo).

VARIATION IN SALES BY SEGMENT

The total variation of home sales from the first to the second quarter of the year ranges from -3% (Guadalajara) to -8% in CDMX.

In the three metropolitan areas, a 13% increase in Residential Housing sales was observed. This may be thanks to the reduction in interest rates on mortgage loans, or because part of the Residencial Plus market has chosen to take less risk and acquire a home below its ability to pay.

The Medium Housing segment had a very different behavior in each metropolitan area. In Monterrey, this segment was the most affected, with a 68% reduction in sales compared to the first quarter of the year.

On the other hand, in Guadalajara this same segment had a 24% increase in sales, while in CDMX there was no variation between Q1 and Q2 of 2020.

Residencial Plus and Premium homes performed very similarly in the three metropolitan areas. The Residential Plus home had a reduction of 8% in its sales, while the Premium segment saw a decrease of 18%.

Real estate panorama: behavior of commercial spaces as of 2Q-2020

The commercial sector has been one of the most affected by the current situation, forcing multiple shopping malls to close their doors or significantly reduce their capacity and significantly impacting the income of each business and shopping malls in general.

However, not all bad news. At blue world city Islamabad we carry out a study of the main metropolitan areas, to analyze the behavior of commercial spaces.

The results are optimistic. We began to see a recovery in prices and in the influx to shopping centers, and we found an important expansion opportunity in specific sectors such as supermarkets.

Here is a summary of this study. If you want to download the full report totally free, you can do it here.

BEHAVIOR, ATTENDANCE AND OPPORTUNITY FOR COMMERCIAL EXPANSION IN THE MAIN METROPOLITAN AREAS OF THE COUNTRY

The rental prices most affected were those of the Lifestyle and Fashion shopping centers. On the other hand, Community and Neighborhood type centers saw a lesser effect, thanks to the fact that they have spaces considered essential, as is the case of supermarkets.

In Monterrey, a significant drop in prices was observed during the month of March, which is already recovering for the month of August. In the case, for example, of the Lifestyle and Fashion centers, prices in August already exceeded $ 600 / m 2, when in March both types of shopping center were around $ 500 / m 2 of rent.

In the case of Guadalajara, the decrease in rental prices was less, but the recovery that we are seeing in Monterrey has not been observed. For example, the Fashion and Community type shopping centers have maintained rental prices around $ 400 / m 2 since March.

There was a considerable decrease in the rental prices of Fashion and Lifestyle. On the other hand, Community, Neighborhood and Convenience shopping centers are already seeing recovery in their prices.

INFLUX

During March and April, the three metropolitan areas saw a very limited influx into their shopping centers. The recovery has been very different for each one:

In Monterrey, during August there are already, in some cases, influxes equal to or greater than those seen in February of this year. Such is the case of Plaza Fiesta Anáhuac, Fashion Drive and Paseo La Fe.

In Guadalajara the recovery has been slower but also more constant. Some shopping malls already have influxes similar to those of February, as in the case of Andares, La Gran Plaza and Galerías Guadalajara.

It is the metropolitan area that has seen a slower recovery. During August we just began to see a rebound in the influx of the vast majority of its shopping malls. Some isolated cases, such as Encuentro Fortuna and Patio Universidad, already show stabilized inflows.

EXPANSION OPPORTUNITY

In the three metropolitan areas, the greatest expansion opportunity identified is in the Supermarkets sector, with more than 600,000 m 2 of unsatisfied demand in each of the cities. The trend is similar for Education and Services.

On the other hand, limited expansion opportunities are observed in the Retail, Restaurants, Entertainment, Home Maintenance and Furniture stores. These items have been the most affected by the current situation and there is a risk of oversaturating the market.

 

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