01 Jun 2023
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Real Estate Investment Trusts (REITs) have been a widely embraced investment vehicle in the real estate industry for quite some time. Nonetheless, our recent joint undertaking with a visionary real estate client epitomized a remarkable reimagining of the REIT concept, propelling their business to unprecedented levels of achievement and revolutionizing the industry as a whole. Within this illuminating case study, we will dive deep into the collaborative journey, highlighting the pivotal strategies and groundbreaking innovations that fueled the client's triumph and elevated the REIT concept to an entirely new echelon.
Before we delve into the details of our firm's problem-solving approach and how we elevate our clients' real estate businesses, it's important to establish a clear understanding of the REIT concept. At its core, a Real Estate Investment Trust (REIT) operates by aggregating capital from multiple investors to establish and oversee a diverse portfolio of income-generating real estate properties. This innovative structure allows individuals to engage in real estate investments without the burdens of direct property ownership or management responsibilities. REITs are renowned for their numerous benefits and distinctive features that they provide to investors. These advantages encompass generating income, offering diversification, ensuring liquidity, employing professional management, facilitating access to real estate investments, and providing tax benefits.
So the important question here is how do we incorporate and apply this specific concept into a strategic approach for our client's real estate business? These are some of the essential steps our professional consulting firm takes before we proceed with developing concept-based tactics.
The initial crucial phase involves conducting a comprehensive analysis of real estate firms to gain a profound understanding of their operational mechanisms. This process enables us to effectively navigate our real estate client's business model by incorporating insights from both domestic and international real estate enterprises. The purpose behind studying companies from different regions is to incorporate global industry advancements into our client's business strategy.
Moreover, we also conducted an analysis to compare the affordability of land in Jakarta with that of the United States, using the Land Purchasing Power Parity (LPPP) approach. This analysis focuses specifically on Jakarta due to our client's business being based there. We aim to assess the relative affordability of land in Jakarta by considering various factors such as prices, income levels and purchasing power. By comparing these factors with those in the United States, we will gain valuable insights into the affordability of land in both regions and provide our clients with a comprehensive understanding of the market.
Based on the data, it is evident that land prices in Jakarta are higher compared to those in the United States. As a result, to address this disparity in pricing, our real estate client should consider implementing price discrimination strategies in order to enhance consumer surplus within the Jakarta region. To come up with above’s data we also did other supporting analysis between states in the US and Regions In Indonesia such as land for sale price distribution comparison, and land for sale price per meter square distribution.
Further background researching, we also conducted a data analysis findings on the hotel market conditions post covid to assist our strategic approach.
Analysis findings figures above shows that the worldwide market size of the hotel industry faced a severe downturn in 2020 and 2021, mainly as a result of the Covid-19 pandemic. Nevertheless, in 2022, there was an upturn in the industry, suggesting the resilience of hotels and their strategies to overcome the challenges.
To further delve in, with the background analysis being provided, what would be our firm’s strategic REIT’s approach recommendation for our client’s real estate project?
As a primary recommendation, we propose the adoption of privately owned PTRE (Platform Type Real Estate) to our clients. This innovative concept integrates residential and commercial real estate, incorporating co-working and co-living spaces. By embracing this approach, clients can benefit from enhanced accessibility, cost-efficiency, and the establishment of a robust network. This concept presents multiple avenues for potential income for our real estate clients. These include earning rental income from properties or land, collecting management fees, benefiting from capital gains, receiving a share of profits as promoted interest, and earning transaction fees. For shareholders investing in real estate through this concept, potential income can come in the form of yearly dividends and capital gains resulting from the appreciation of property values.
Therefore, The real estate clients utilize two revenue stream models and a financing model to facilitate the expansion of their business. By implementing multiple sources of income, the clients can exercise better control over expenses and reduce their dependency on a single revenue stream. This strategy allows them to mitigate business risks and establish a more resilient and prosperous future.
Within the PTRE recommendation, we have adopted pricing models, PTRE financing types, and simulations as benchmarks and standards to support the implementation of the privately owned PTRE recommendation. In the pricing model section, we applied the principles of economic marginal revenue and marginal cost pricing to simulate different scenarios involving the number of customers renting the co-working and co-living space. Our goal is to determine the sales rate that is most optimal and efficient. Additionally, within the financing aspect, we have implemented a three-stage model comprising privately owned PTRE, Privately Managed Platform Type Real Estate, and Privately REIT + Stapled Security Holders/PIPC Project Financing. This model has been devised to simplify the flow of financing processes, optimize revenue streams, and enhance cost efficiency for tenants, clients, and REIT investors.
Regarding the secondary recommendation, we have put forth the concept of a hotelier business model. In this context, we have conducted an analysis of various types of hotelier businesses specifically in Jakarta. The aim is to offer a comprehensive overview of the different scenarios that arise when applying these distinct hotelier business models. By implementing such business types, our client, acting as a REIT/fund manager of the real estate project, can benefit from several advantages, including steady income, diversified revenue source, customer drives from loyalty program, product differentiation, open to partnership collaboration, seasonal offering strategy adaptation, and many more
REIT is indeed a profound concept that could be implemented and applied by fund managers. Its simple model contains complexity of background research findings, correlation/comparison, and different types of simulation scenarios to further assist, benefit, and create a sustainable REIT investment. By leveraging this concept along with its in-depth analysis, our assist with our real estate client has brought success to the projects and has secured long term investment.
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