Shareholder Value Implications of Real Estate Finance-A theoretical Analysis for the German Real Estate Market

Real Property on average accounts for ten to forty percent of corporate market value. Its relevance for Shareholder value however, has not yet been analyzed satisfactorily and existing studies focus on cash flow aspects. Impact and potential of finance aspects have been neglected. This study analyses the theoretical framework and the applicability of Shareholder Value concepts to Real Estate finance. Potentials result from the difference between actual and theoretically appropriate capital costs due to the portfolioís risk-return profile. Avoiding those opportunity costs by putting adequate finance in place, is however linked to three conditions. Real Estate performance must be transparent, management has to be independent and investors have to be able to choose their preferred Risk-Return profile. Only after that is accomplished, already calling for major strategic and organizational changes, specific financial instruments for equity and debt can be utilized. Due to their highly innovative character, acceptance in the German capital markets cannot yet be estimated.