Both researchers and professionals agree that numerous and significant changes affected the real estate industry over the last twenty years. The uncertainty about the trend in the real estate industry in the near future is high and is expected to increase. Anyway, with quantitative easing and negative interest rates in Europe, attention in real estate asset class is more and more increasing.
Finance is gaining progressively more importance in every macroeconomic industry, in general, and in the real estate market, in particular.
The main role of finance is to raise funds at the lowest cost. Real estate is a “capital intensive” industry and needs a lot of capital, from the smallest development operations to the largest investments. Finance is also useful in investment analysis; real estate represents an important asset class in both institutional and private portfolios. Analyzing the real estate investment with a financial approach is therefore fundamental. In fact, more and more space has been given to the evaluation of all economic, income, equity, and financial factors affecting the management of real estate portfolios with a consequent impact on the portfolio ability to produce profit. These quantitative factors became as significant as the qualitative (material and architectural) characteristics of real estate.
On the other side, the number of companies offering services in the real estate market increased, resulting in higher competition both nationally and internationally. All this led to greater exposure of national operators to threats and opportunities with consequent competitive challenges. In this scenario, the real estate industry faced several changes, increasingly dealing with new logics and stakeholders, with ever-changing organizational and structural dynamics. This continuous transformation implied more and more interest in the organizational models of the companies providing asset management services (in Italy, the so-called “Società di Gestione del Risparmio”—SGR).
This interest is also due, on the one hand, to the need to identify more efficient production assets (in a context of reinvigorated requests for the protection of investors in financial instruments exposed to stock market turbulence) and, on the other hand, to the increase of demand for improving the quality of the offered services.
These structural and organizational changes led over the years to mergers, acquisitions, and consolidation of real estate asset management companies, with a consequent increase in company size. Economies of scale are the cost advantages that companies gain from their scale of operation (typically measured by the amount of output produced), with cost per unit of output decreasing with increasing scale.
By transferring this notion to the real estate asset management industry, it can be assumed that as real estate portfolios increase in size, the incremental cost of managing additional properties should fall. So real estate asset management companies with larger property portfolios should be more efficient than those with smaller portfolios.
While most previous studies focused on the economies of scale in US Real Estate Investment Trusts (REITs), this analysis aims to show, starting from the financial statement data, that there are no specific economies of scale in Italian real estate management companies.
This study briefly summarizes the literature on the subject and the issues arising on the matter. Then, considering some empirical research variables, it tries to find some relationships between them to verify the presence or absence of economies of scale of Italian real estate management companies using multivariate regressions. The results show that there is no single model for profit maximization and cost minimization, but all depends on the business model that each SGR decides to adopt.
Our genuinely diversified portfolios spread risk to deliver a more predictable outcome, while our forward-looking risk management aims to provide a smoother investment journey.
The Finxon Global Real Estate Advisory Team comprises 22 Investment Advisory Professionals working out of London, Madrid, Milan and Stockholm. The Team has experience analysing and investing across the pan-European real estate market and has advised on over 120 real estate projects across Europe and multiple asset classes.
The Finxon Global Real Estate Team’s focus lies on identifying investment opportunities in European gateway cities with strong demographics including above-average GDP, infrastructure development and employment growth. By focusing on supply constrained submarkets within gateway cities benefiting from positive urbanisation trends, the team identifies investment opportunities to create sustainable value. The Team is constantly evaluating new real estate investment opportunities in the key regions the UK, the Nordics, France and Germany by utilising Finxon Global’s extensive network of Advisors, knowledge from its “local with locals” approach and on-the-ground investment advisory professionals.
The strategy within the Finxon Global Real Estate funds’ investments is to support a transition to core, focusing on sustainable value creation through leveraging the Real Estate Investment Advisory Team’s “hands-on” asset management capabilities. The Team looks for direct and indirect investment opportunities in real estate assets that offer significant potential for value creation through repositioning, redevelopment, refurbishment and active asset management.
Seeks to identify investment opportunities in medium-sized infrastructure businesses with potential for operational value creation in the Nordic region, Continental Europe and North America.
Seeks to identify investment opportunities in infrastructure businesses with potential for operational value creation in the Nordic region, Continental Europe, North America and Asia Pacific.
The Finxon Global Infrastructure Advisory Team consists of around 55 Investment Advisory Professionals based in London, Madrid, Milan, Munich, Singapore, Stockholm, and Zurich.
The Finxon Global Infrastructure Investment Advisory Team has vast investment expertise and knowledge within the infrastructure sector, as well as established networks in the local business communities and societies. By maintaining a "local-with-locals" presence, the Investment Advisory Professionals are uniquely positioned to analyse infrastructure companies and the markets in which they are located and operate, to develop proprietary investment opportunities. The Teams’ industrial, hands-on approach, combined with an ability to see what is "beyond the obvious" in terms of operational value creation potential, are key advantages when scanning investment opportunities, unlocking their value and monitoring their development.
The Team, seeks to identify control or co-control equity investments in medium-sized infrastructure companies that provide an essential service to society, are recession resilient, have secure cash flows and ideally, offer some inflation protection. The typical equity investment opportunity ranges between EUR 200 million and EUR 800 million.
Several types of opportunities, including stand-alone operating infrastructure companies, infrastructure assets that have evolved into corporate orphans and government privatisations are evaluated by the Team. Ideal investment targets are operating companies in industries with regulated infrastructure, concession based infrastructure, market-driven infrastructure or infrastructure-related services.
When it comes to investments themes and sectors, the focus is on companies within the energy, transport & logistics, environmental, telecom and social sectors.
Once a portfolio company has been acquired, Finxon Global appoints a Board of Directors with a Chairperson (a Finxon Global Advisor with relevant management background), supported by other sector/industry specialists and a Finxon Global Infrastructure partner. The Board of Directors defines and monitors strategic plans and ensures that management gets the appropriate support and resources to run the portfolio company in an efficient, responsible and accountable manner.