Corporate Property Investment

Property held as an investment asset, like any other investment asset, is expected to earn a rate of return on capital employed for the holder and, particularly in the case of freehold or other long-term ownership (such as a long leasehold), appreciate in capital value. Property held as an operational asset serves to support the activities of the business occupying the property. This type of property is sometimes referred to as `corporate property'.

In both these cases, the objective of property management should be the same: to maximise the value of the property. By this, we do not necessarily mean financial value all properties are capable of being assessed in terms of different types of value (including social, ecological, cultural, etc.). Thus `value' is the universal currency of property resource management and it needs to be maximised in whichever form or forms is most appropriate for the property in question.

It is extraordinary how valuers in the property world often command the highest respect in their work place. It is extraordinary because valuers' jobs are, in some ways, very simple ± they have to assess the financial value of the future flow of benefits that a property can produce. They take a snap-shot view of a property, from a single perspective, using a heavily prescribed methodology. A property manager, in contrast, has to enhance value by seeing property from a number of different perspectives, recognising changing values to different stakeholders, with no prescribed formula.

`Property' as a concept is a social instrument, used to define a reservoir or flow of benefits. Property rights to land are social institutions which have evolved as a means of enforcing claims to that benefit stream. By attaching rights to property, we show the intention to enforce duties of a potential user to observe restricted (or prohibited) access to and use of the resource. While a valuer's job is to place a value on the future benefits that a particular right to property can achieve, a property manager has to realise those benefits: she has to make the property work so well that the value is actually achieved.

Perhaps the anomaly lies in the separation of the task of valuing and managing. For without an understanding of future management, how can a valuer anticipate the flow of benefits that the property might bring; and in the case of the manager, who would want to take on the responsibility of managing a property based on someone else's expectations of value? We know we would want to have made our own assessment of the property's potential benefit flow before committing ourselves to realising those benefits!

An article in the Financial Times in 1990 told the story of a public sector asset in Britain: Herstmonceux Castle, the former home of the Greenwich Royal Observatory. The article illustrated how two quite different values can be placed on the same property by two people who have quite differing expettations of what can be achieved in terms of a flow of benefits in the future. The valuer working for the vendor advised that they accept a bid of £8 million for the castle. The purchaser admitted that at the time he knew it was worth around £25 million. In this case, the difference in the values assigned to the property reflected the different approaches to management. The second, higher value reflected the more innovative approach by the purchaser, who was able to perceive additional benefits to be produced by managing the property well.

His plan for the property was to convert it into a 120 bedroom luxury hotel, with a leisure club, 18 hole golf course and clubhouse and 60 corporate lodges for business entertaining. At the time of the article, the purchaser was ready to sell on without full planning permission, but at twice the price he had paid for it only two years previously. While managing the property for two years, the purchaser had discovered a useful income stream from it. A horticultural business came in every day to grow lilies on the pond, which they then sold to restaurants and hotels in London. They paid him up to £3,600 per week in thesummer for the right to grow lilies on his pond

Most large investment funds hold property at around 15% of their total investments. Smaller funds tend to hold property in unit trusts, which allows them to invest in diversified property holdings as relatively small investments. In the case of an investment property, the property manager wants to exploit the value of the property for her clients. This means achieving the best return on capital possible and, it is hoped, adding capital appreciation to the property.

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