From ìLocation, Location, Locationî to a Broader View at Real Estate Risk

In the opinion of practicioners real estate risk is determined by three factors: the location, the location and the location of the property. At the one hand, this leads to systematically neglecting other important groups of risks in real estate companies. On the other hand, nowadays scientific debate distinguishes several qualities of risk management systems: risk management of the single property, qualitative portfolio risk management, quantitative risk management and _ as the most advanced approach ñ an all_embracing enterprise risk management. The concentration on location based risks and therefore on risks on a single_object_level is cumbersomely to taking further steps towards such an advanced risk management in real estate companies. First of all, the paper presents the results of a broadly based literature review. These results indicate, that besides location based risks further groups of risks exist, which have a direct impact on property performance. These especially include object_ based risks, for example tenantís creditworthiness or building substance risk, and corporate_based risks such as management quality, financial or legal risks. In the following the paper draws the concept for a model to integrate object_related corporate_based_risks into the risk assessment of single properties by distinguishing the market_ and location_determined ìrental valueî and the actually realized rent. The gap between the two values indicates difficulties arising from object_based risks, for example tenantís creditworthiness or management quality ñ in other words: the property could perform better if problems that arise from the companyís sphere were smoothed out. The paper closes with an outlook on possibilities for the further development of risk management systems in real estate companies.