Independent thesis Advanced level (degree of Master (One Year)), 20 credits / 30 HE credits
A master thesis in business administration 30 hp, Jönköping International Business School, Spring semester 2012.
Authors: Sarah Henningsson & Jim Börefelt
Supervisor: Urban Österlund
Title: Commercial real estate investment – Factors from an investor perspective
Background and problem: In this study, we focused on the real estate investor and the factors and issues that may arise and affect real estate investment decisions. It has been put in relation to the other parties in the process of assessing and affecting real estate investment decision. The parties that we studied are real estate investors, banks, brokers and appraisers.
Purpose: This study aims to describe and explain the factors that affect commercial real estate investments for investors, credit assessment conducted by the bank and valuation made by the broker and appraiser.
Delimitations: We have chosen to limit the study to commercial real estates including residential, retail and office properties, industrial properties and combinations thereof. Agriculture buildings and forestry plots are not examined. We have also chosen to limit the study to the county of Jönköping.
Method: The study has a qualitative approach and primary data were collected through personal interviews.
Results and conclusions: To create value and profitability, the investors in our study look for opportunities to improve and develop properties in order to increase the value and return. It is also important that the location of the property is right to have a positive growth development. Then the property's condition and standard are important. The most important method when valuating a commercial real estate is the cash flow method. In addition to calculations of the property’s cash flow, this study has shown that the investor's intuition and gut feeling is of great importance for the final assessment in a commercial real estate decision. This also applies for the valuation made by the broker and appraiser. The bank on the other hand is more restrictive in their valuations.
Propositions for further research:Today, a lot companies and investors select to sell their properties in packaged form. Packaged form means that instead of selling the property as a detached object it is placed in an affiliated company and then sold. By doing this way it will not be recorded as a real estate transaction but instead as a corporate transaction. Studies could relate to the positive and negative effects that this entails. Another topic that could be studied more closely is the system of rent setting of apartments in Sweden. Our study also shows a trend toward urbanization in Sweden, this is a subject that would be interesting to study further.
Keywords: Real estate investments, commercial real estate, valuation and real estate development.
2012. , 70 p.