Long Term Leasing for Office Buildings LL HCMC en 1112 Compatibility Mode

7/31/2019 Long Term Leasing for Office Buildings LL HCMC en 1112 Compatibility Mode

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Long Term Leasingfor Office Buildings

Why, Who, How?7 Dec 2011

Presented by: Nathan Cumberlidge

CBRE | Page 1


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CBRE | Page 2


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A otential reason to sell?

CBRE | Page 3


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Vietnam is growing fast but expansion can be toxic

Growing economies typically have:

Volatile inflation 2011 estimated at 19%

Rising construction costs

A cautious banking system offering limited credit

Increasing regulation on developers and landowners Decree 95

Rapidly increasing construction quality decreasing theage of building obsolescence

Commoditization of the market very difficult todifferentiate your product

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they can as soon as they can


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Key Office Market Facts

Since 2007 there hasbeen a rising vacancy

properties A high supply pipeline

will compound thisissue

demand : vacancieswill increase! FACT

This will impact ALLLandlords to different

CBRE | Page 5


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for nearly 3 years

A declining rental structure

represents a declining profitmargin on your original

I BET YOU HAD 5-10%

RENTAL GROWTH PERANNUM

Selling floors at a slight

against further decreases.

Floor purchase is a growth

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area but will it last?


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Market Analysis

The Nightmare (likely) Scenario!

1 You secure a tenant but on a lower rent and shorter lease withextended rent free

2 You have to sign a contract in VND the VND devalues 5-10% each year

3 At renewal the new shiny building down the road offers a great deal

5 - Your investment value drops with the rents

6 Your cash flow drops and you cant afford to stick to your originalrefurbishment schedule

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7 tenants see the decline in quality and leave in 6-10 years


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Market Analysis

Panic Not! there is a blue sky scenario

1 Diversify your asset with some long terms leases

You are guaranteed a service charge from these tenants (variable)

They will agree to a sinking fund / payment for important improvements (newlifts, floor, lighting etc) through negotiation keep your building current

Offset potentially high vacancy an empty floor is not a $0 cost you will

2 The building will always be a certain % full (no tenants like an empty building)

3 A large company such as Petro Vietnam, EVN, Bank will always hold prestige in amarket maintaining a good rental and attracting other tenants

4 A key anchor tenant is likely to be a growth company and will expand in yourbuilding they will also periodically take short term 3-5 year space in good times

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5 If the contract is good and they are an owner occupier it will not damage theinvestment value for your remaining space.


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Financial pressures

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Market AnalysisCost of Finance Can you start, finish, maintain your project?

Cost of finance is at high % with a loan to value rate of 30%

Banks have been told to decrease their exposure and the credit line

is set to dry further

Banks increasingly calling in debts and penalties associated withdefault very high high % of default?

profit margin over construction costs and finance for this section ofthe property

Decree 95 is a real risk. Leases are fixed at 3 to 5 years. Everydevaluation of the VND will loose you money, even with annual rentreviews you will loose for 3 quarters.

CBRE | Page 10

Selling early will offset the risk of devaluation for a section of yourproperty


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Cost of finance can impact on the rental

Stay in front

price.

If you need to secure loans the interest

tenants in rent or to you in reducedprofits.

Selling a floor can raise quick upfront

payments and depending how the

completion of the building.

You can therefore raise ca ital but retain

profit margin and remain competitive

Also an upfront capital payment can

CBRE | Page 11

ass s you w e cos o runn ng e

building post opening.


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CBRE | Page 12


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Know your purchasers

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Who will be interested and why?

In general we can split a purchaser into two categories

Investor and Owner occupier

Key drivers for each:

Initial Asking Price Vs Rental Location for staff & Clients

Future rental growth & what rate (%) Internal office specification

Existing & Future tenant mix Asking price & payment structure

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An investment is made throu h the income it achieves.

Why they buy?

Will the rents rise steadily?

When will they get a return?

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Who you want?

Owner occupiers

Vietnamese / Foreign firms with a long trading history

Whole / floor occupiers

Low density occupiers 1 staff to 8-12 sqm

Investors looking to sublease

Start up businesses

Small space occupiers 100 -200 sqm

CBRE | Page 16

High density occupiers 1 staff to 5 sqm


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How to chose your tenant?

How to choose?

Look at their accounts? 2-3 years trading history

Look at the company structure ow many s a o ey ave

What hours do they work?

Is this a rowth / stable industr ? You want a long term safe tenant

You dont want them sub-leasing if possible What is their motivation for buying not leasing?

Are the expanders can you lease / sell them more

Why important?

50 ears service char e to a the need to be stron !

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Your other tenants must not suffer!


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What to sell?

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Choose the least attractive part of your

What to sell in your building?

building

You want to keep the best parts for

The prime space will benefit from themost rapidly rising and most stablerents.

Designate areas of the building for floor

split the long term and short term. Allow some buffer space for the long

term player to expand. Lower floors are good for long terms

CBRE | Page 20

Keep control of your car parking


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Pricing

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Price

and QUANTITATIVE aspects of the property

Does it have what tenants want?

,20, 30 years time

QUANTITATIVE

What are other buildings available at? Is this reasonable

a ren a pr ce can e ac eve Potential for rental growth?

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TheCriteriaandSubCriteria

CBRE

use

a

number

of

factors

to

determine

the

rice

Location

ofaprojectforbothoccupiersandinvestors

District,Distance

to

CBD,

On

Major

Road,

Quality

of

CommercialLocation,SurroundingRoadNetwork,Growing

ExternalConstructionQuality

ExternalImage,BuildingMaterialQuality,Glazing(Single/Double),CurtainWallWindows,Landscaping

CommonAreas

e

rea

er

oor,

zeo

o y

sqm ,

n erna

a s

(marbleetc),FloorFinish,ToiletQuality

InternalOfficeS ace

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FloorToCeilingHeight(2.7m)Lighting,RaisedFloor,Pantry


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Criteria&SubCriteria Contd

BuildingManagement

SecuritySystem,BackUpPower,Telecommunications,AirConditioningSystem,FireProtectionSystem,BuildingManagementSystemQuality

Lifts

ran , apac y, um ero , ua yo s,Lobby,Liftspersqm

Car,Motorbike Amenities

Bank,Restaurant,GeneralSurroundingArea ExpansionCapabilities

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, ,


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Benchmark analysis for rent / price determination

200.0

250.0

Flexibility

150.0

Surrounding Area

ParkingLifts

Security

50.0

100.0Site Ulitities and Services

Building (Internal)

Building (External)

Location

0.0Option 1 Option 2 Option 3 Option 4 Option 5

Fullyanalyze

your

project

and

determine

its

level

Choseabenchmarkproperty

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Determineapriceandrentagainstthebenchmark


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The Maths!

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Set Your Rent Choose a Multiply You Have(ex VAT & SC) Discount Rate Together your price

Example

/ sqm / month oryears (20*12) * 7.12 , persqm

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Market correctl

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Banners

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Marketing Brochures & Announcement Cards

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Websites

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Calling directly

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Ad i i l


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Advertising tools

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E t O k d t lk


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Events, Open week and talks

O en Weeks & Events

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M k ti l d B d ti


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Marketing plan and Budgeting

Gantt chart for marketin

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Dont et it wron !

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Things to consider


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Things to consider

Payment structure

Sinking funds

Paperwork

Si na e ri hts Parking

Area (measurement methods)

Right to renew Insurance

CBRE | Page 37

Notarized agreement


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You have secured a tenant You must now negotiate the contract. There are some important factors to note in this stage:

Price

Through CBRE analysis you will be able to determine a fairprice for the property

ayment structure yp ca y:

10% deposit signing Memorandum of Understanding

-

10% - Handover

*

CBRE | Page 38

payment term extended.


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Service char esWhat is included in the services?Is the rate variable and is the increase capped?Is the building managed by you or a third party?

When is the charge reviewed?

Sinking Funds

Have ou set u a eriodical a ment for lar e itemssuch as replacement of lifts / AHU / Chiller

u - eas ng ass gnmenIs it possible to sub-lease / assign (vital for investors)

CBRE | Page 39

Can they decide upon your sublease rental rate?


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Papers & Documents

A lawyer should check documentsOwnership License you will need to produce

ons ruc on cense you w nee o pro uce

Authorized Entity (in case of a Joint Venture)

Signage right

Will you permit a right to signage?Is this right transferable to sub-tenants?

Will you grant free spaces & how many

CBRE | Page 40

Is it an allocated space? Or can the management decide


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Area

Gross / NetHow is this calculated (including pillars etc)

After Lease ExpiresCan they renew

Do you have to pay again?

Insurance

Who purchases?Landlord typically for the structure you for your internal

space

Notarized Agreement

CBRE | Page 41

Must be notarized need to submit certain documents


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CBRE | Page 42


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1.Choose an Area 2. Analyze price

. .

CBRE will analyze your property and advise a space to sell

CBRE will help you choose the best price

CBRE will help you market and find purchasers CBRE will ensure you have a strong contract

CBRE | Page 43

Significant Deals 2011


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Significant Deals 2011

Leasing

Nokia 17.25 Hectares (Industrial)

a ec are n us r a

PVEP 7,300 sqm (Offices)

First Bank 1,000 sqm (Offices)

Fubon Bank 1,200 sqm (Offices)

Parkson 25,000 sqm (Retail)Ascott 20,000 sqm (Serviced Apartments)

CBRE | Page 44

www.cbrevietnam.com


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Over 300 markets in more than 50 countries

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We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy and make

Thank You

CBRE | Page 45

no guarantee, warranty or representation about it. It is submitted subject to the possibility of errors, omissions, change of price,rental or other conditions, prior sale, lease or financing or withdrawal without notice. We include projections, opinions,

assumptions or estimates for example only, and they may not represent current or future performance of the property. You and

your tax and legal advisors should conduct your own investigation of the property and transaction.

Long Term Leasing for Office Buildings LL HCMC en 1112 Compatibility Mode

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