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Long Term Leasingfor Office Buildings
Why, Who, How?7 Dec 2011
Presented by: Nathan Cumberlidge
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A otential reason to sell?
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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
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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.
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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
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ass s you w e cos o runn ng e
building post opening.
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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
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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
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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
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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
*
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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)
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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
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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
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Must be notarized need to submit certain documents
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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)
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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
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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.