Is your real estate advisor increasing your market value?
At Latitude Developments, we practice what I call “Being a Market-Oriented and Value-Driven Real Estate Advisor.”
Accordingly, in my point of view, the real estate advisor’s most crucial role is to achieve higher yields for real estate developers and investors.
For this reason, your real estate advisor should help you:
- First, to identify undersupplied market segments so that you leave the competition behind. Thus, you can profit from higher demand levels and better margins.
- Second, your real estate advisor must answer to the identified market gap with a matching market-oriented project. Besides, the proposed project must respond to the exact pain points of the defined target customer segment. Doing so will increase the tenants’ and buyers’ willingness to pay. In this way, you will accomplish a much more considerable gross development value for the proposed project.
- Third, to forge immense efficiencies across the real estate development process. Your real estate advisor goal thereupon is to decrease operating and capital expenses and to enhance your cash outlay.
Is your real estate advisor following a robust real estate business strategy?
To start with;
Your real estate advisor’s first duty is to enable you to reap higher revenues from uncontested market segments instead of keeping you battling competitive spaces full of mass and monotonous projects.
Your real estate advisor’s second obligation is to eliminate your financial stress. He should reduce your capital and operational expenditure and help you to manage better cashflows.
Therefore, your real estate advisor will increase your gross profit margins as well as the expected return on your investment.
How much higher yields should you expect from your real estate advisor?
Your real estate advisor must be willing to boost your gross development market value by 5% to 15% or more.
How much savings should you expect from your real estate advisor?
Your real estate advisor should be able to restructure your real estate development value chain in exchange for reducing your cash outlay from 5% to 30%.
Why am I stating these minimum targets for your real estate advisor?
Simply, If there is no room to increase your revenues by a minimum of 5% or to decrease your expenses by a minimum of 5%, then you are already extremely efficient, and you do not need a real estate advisor at this stage!
How will you gain higher value from your real estate advisor?
- I added $2b market value to a client’s portfolio by re-positioning all his assets to serve high in-demand market segments. Also, I strategically reduced his capital and operating expenditure by 4% and 11% respectively.
- For another leading developer, I secured $800m+ prime land while shrinking his acquisition cost by 85% through various strategic Joint Ventures.
- Recently, I boosted revenues by 17% & decreased operating expenses by 22% for a vital family office.
How will you know which real estate advisor will create your incremental value?
You may be asking, well Ahmad that is all good, but how can I guarantee similar results?
How about this answer?
I believe in risk/reward partnerships. In consequence, your real estate advisor must agree to have his skin in the game.
Contrary to conventional practices, I base my fees entirely on the incremental value I generate to my clients rather than on the time I spend working on their projects.
If your real estate advisor is confident in his ability to create incremental value, there is no reason to refuse a value-based fee.
On the contrary to the prevailing market practice of time-based fees, confident real estate advisors will favor a value-based relationship.
Accordingly, this is why I guarantee the quality of my work.
Hence, If I do not meet the agreed objectives with the developer or investor I am working with, and that fault is mine, I will refund him the full fee.
Why I offer this guarantee and why you should expect the same from your real estate advisor?
Naturally, the job of your real estate advisor is to shift you to a better place. Hence his primary obligation to you is to increase your gross development value. Subsequently, He should favor a value-based compensation on a time-based remuneration.
Therefore all fees should be based on the incremental gain that your real estate advisor created to you.
A confident real estate advisor should be willing to align his interests with your goals and objectives.
To conclude, In my point of view, all fees should be value-driven and not time-based.
Why do I believe in market-oriented and value-driven real estate development?
Recently, I restructured the entire development strategy for a massive landlord.
So far I managed to triple his land value.
Several weeks ago, this client told me: “You have accomplished the impossible; we never thought we could generate so much value from our land.”
That is why I do what I do. I have no doubts, what so ever, that this should be the ultimate reward for any value driven and market-oriented real estate advisor.
Why do most real estate advisors and consultants fail to create incremental value for their clients?
Here is what I learned:
Real Estate advisors must consider three cornerstones to achieve more substantial gains and higher yields for their clients.
Consequently, real estate advisors should first avoid the crowd mentality second differentiate the proposed development and last help to decrease costs and cash outlays across the real estate development process.
It follows that, when your real estate advisor achieves the above, you are guaranteed higher yields and more massive gross development value for your projects.
I will expand each of the above cornerstones below.
Avoid the crowd mentality:
- Most real estate advisors follow the crowd. A limited number utilize their resources to identify undersupplied market gaps, valuable demand generators, and emerging rewarding trends. They deploy most resources on benchmarking the competition.
- While benchmarking is good to understand current yields, volumes, values as well as capture rates and absorption rates; it falls short to identify undersupplied market niches and to predict new trends.
- You cannot enjoy higher returns if you are merely competing with every other developer in town. As a successful real estate developer, you need to continuously create your uncontested market spaces and leave the competition behind.
Deffrientate to create value:
- Most real estate advisors spend minimal energy on differentiating real estate development projects they propose to their clients. Analyzing current market offerings rather than investigating the target market segment likes, dislikes, and aspirations does not create incremental value. Instead, it merely targets the market average. Is this what you want to settle on?
- Essential real estate developers should design and develop according to very well defined customer segment profiles. It is about tenants and buyers (the client) and not about the product. Most Real Estate advisors are still short of adopting a customer mindset; instead, they focus on the product. The question is “what does the client want”? this is different from “what do I want to develop?”
- Differentiation creates value. Hence developing around the exact wants, needs, and pain points of the target customer segment will generate a match between the project offering and the client’s needs. Ultimately, this will translate into an increasing willingness to pay from the client’s side.
Strive to increase efficiencies:
- Not many real estate advisors pay attention to the importance of decreasing the total development cost of a given project.
- It is essential to continue forging immense efficiencies across the real estate development value chain.
- Developers can reduce their overall cash outlay from 5% to 30% by incorporating proper land acquisition strategies, comprehensive project management, and smart value engineering.