Disinvestment-strategy in corporate real estate management

Since the early 90s private enterprises as well as federal, state and local governments have taken the first steps to a more effective and efficient structuring of operational processes and the use of its real estate portfolio.In order to release tied assets and minimize operating costs, non operating properties were sold. Nonetheless, in many cases internal restrictions exist. As one example, sales should at least achieve the book value. Hence, mainly marketable properties with high development potential were sold in the subsequent marketing process. Today, an extensive share of unprofitable properties remains in non operating real estate portfolios. These mainly possess limited marketability and/or low development potential. Due to long lasting vacancies and reduced maintenance management a significant decline in condition is observed. At worst, this leads to a collapse of buildings resulting on the one hand in a further reduction of marketability. On the other hand, these scenarios increase the pressure for action towards arising risks leading to law conflicts. As a consequence, unsold properties cannot be converted into liquid funds matching the book value. Moreover, operating expenses continue. Even worse, the pressure to act enforces to fend off the risks described, e.g. large-scale maintenance or demolition work. These countermeasures lead to an additional loss due to unprofitable investments, which are mandatory to decrease upcoming costs. Hence, the resulting requirements for dealing with the non-operating portfolio change dramatically, so that present disinvestment strategies fail. Within this paper, current developments and trends regarding non operating real estate portfolios will be marked out. Furthermore, a research design for a new approach towards a real estate portfolio model serving as a fundament for next generation disinvestment strategies will be shown. This approach will be built on the identification, systematization and valuation of relevant risks to develop a portfolio management system that makes it possible to create transparency with regard to the current requirements in the reduction of non-operating real estate. As prime example, the non operating portfolio of Deutsche Bahn (DB) will be used.