140418 alternaty presentation university of economics hcmc final

A boutique real estate firm, we partner with hotel and resort developers to deliver alternative real estate products.

Property Market Classes

Prepared for: University of Economics of HCMC

Prepared by: Alternaty - Alternative Real Estate

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Alternaty is a boutique real estate firm providing a suite of consulting services throughout the development lifecycle. Headquarter in HCMC Vietnam, with associates in Thailand, Myanmar Indonesia and the Maldives.

Our team has 17 years of combined experience in the real estate industry with an extensive track record in hotel and resort advisory in Indochina Region

More than 40 hotel and resort valuations in Vietnam, Lao and Cambodia.

More than 35 feasibility and market studies.

12 Operator selection advisory assignments.

Vast experience in mixed used residential resorts, rental pool structure and fractional ownership.

AlternatyAlternative Real Estate

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The Various Stages of the Property Lifecycle

Our scope of services

Land Planning

Market research

Feasibility study

Valuation

Hotel operator selection

Development recommendations

Highest and best use analysis

Due diligence

Investment

Construction

Design review (from operation stand point)

Pre-opening budget

Interior design review (from operation stand point)

Facilities review

Positioning and branding identity (operation stand point)

Operator and consultant selection

Organization chart review

Pre-opening

Interim GM service (pre-opening GM)

Sale and marketing review

Tailoring of hotel standard operating procedures (SOP)

Hiring and training

Pre-opening check list review and implementation

Operation

Owner representation service

Periodic operational review and critical points analysis

Training program

Sales and marketing review

Budget control and targets

Online reputation control and review

UpgradeReposition

Hotel operations review

Inspection and operational analysis

Service upgrade implementation and training

Mystery guest service

At any stage of the development process, hotel owners can benefit from professional advice.

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Our Scope of ServicesAbout Alternaty

• A boutique real estate firm providing a suite of consulting services throughout the development lifecycle.

Investment Services

Feasibility study

Cash flow modelling

Highest and best use analysis

Development recommendations

Valuation

Sales & Marketing

Exit strategy execution

Alternative Real Estate

Hotel Operator Selection

Understanding the Client’s objectives

Consideration of management options

Preparation of biddings documents

Collection of EOIs

Comparison matrix of candidates

Shortlist of suitable options

Negotiation of commercial terms of MOU, TSA and HMA

Villa Management

Resort style management of second home projects

Website bookings and reservation engine

Villa Brand Standards

Standard Operating Procedures

Butler Services

Hotel Pre-opening Services

Functionality & Facilities Review

Branding and Service Concept

Hotel operation forms & tailored amenities list

Organization chart and staff positioning

Hiring and training

Tailoring of hotel standard operating procedures (SOP)

Hotel Operations

Review

Tailored monitor of hotel performance

Inspection & operational analysis

Full operational review of each department

Departmental recommendations

Implementation of Standard Operation Procedures (SOP)

Monthly Supervision

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Class Schedules

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Class Schedules – 2014 Alternaty 1.Property Business and Development Cycle

2.Project Feasibility Study

3.Property Investment – Structures and Financing

4.Property Valuation – Land and Income Producing Assets

5.Property Market Analysis

6.Cash Flow Analysis for Hotel and Resorts

7.Cash Flow Analysis for Mixed Use Development Projects

8.Retail Development Stages

9.Hotel Development Stages

10.Township Development Stages

11.Case Studies Series 1 – Operator Selection for Grand Hyatt Hanoi

12.Case Studies Series 2 – Township Development in Phnom Penh

13.Case Studies Series 3 – Minority Investment and Operation Control for Mixed Use project in Hai Phong

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Property Business and Development cycle

First Class - Property Business and Development Cycle

1. Alternaty Introduction

2. Real Estate Market Introduction

3. Real Estate Various Assets Class• Residential - Prime

• Commercial

• Hotel, Resorts and Serviced Apartments

• Residential – Vacation Homes

• Industrial Property

• Mixed Use

4. Property Investment Stakeholders• Investors

• Banks

• Consultants

• Community

• Tenants

• Operators/BrandsApril 2014

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Property Business and Development cycle


5. Property Investment Stages • Planning

• Financing

• Implementing

• Construction

• Pre-Opening/ Pre-Sale

• Operation

• Building Sale

6. Property Ownership • Full Ownership

• JV Partnership

• Leasing

• Fractional Ownership

• Management Only

7. Case Studies

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Various Asset Classes of Real Estate


Real Estate?

Real estate "consists of land and the buildings on it, along with its natural resources such as crops, minerals, or water” and it is an immovable property of this nature.

Real estate refers to land, as well as any physical property or improvements affixed to the land, including houses, buildings, landscaping, fencing, wells, etc.

Central focus of Real Estate is ... The Land

What makes land so valuable? Its scarcity!

Land is in fixed supply, plus is Unique and Indestructible!!

Various type of Real Estate, the main three categories are:

• Residential

• Commercial

• IndustrialApril 2014

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Residential

Arguably the most well-known real estate asset class

Everybody needs a roof (...)

There are two main categories of residential:

1) Primary Residential – used as owner occupied properties

2) Second Home or Investment Home – used as investment or land banking

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Primary Residential Types

High Class Condo• Typically full facilities including

parking, restaurants, swimming pool, good management, highly trained security.

• Average size, 80-120 sqm, two or three bedrooms.

• Central districts

High Class Villas• Typically located in prime

residential areas

• Can be Detached or Semi-Detached

• Outdoor, Garden and Swimming pool are usually included.April 2014

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Shop Houses• Extremely common in Vietnam

(not in other countries) due to the land subdivision policy.

• Opportunity for a Retail in the ground floor

• Standard interior design with large internal staircase.


Low Income Housing• New “trend” in Vietnam but very

common in other countries as landed houses are more expensive.

• Size is usually small (40-60 sqm)

• Located in densely populated area

• Strong pre sale marketingApril 2014

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Township Projects• “Phu My Hung” Type

• Strong residential components with some commercial included

• In some cases land subdivided and sold as small plots to end buyers.



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Second Home or Investment Home

Why invest in Real Estate?

• Highly Tangible Asset ValueUnlike stocks and, to some extent, bonds, an investment in real estate is backed by a high level of brick and mortar.

• Attractive and Stable Income Return

• Require limited management

• Portfolio Diversification

• Less correlated to other asset class

• Inflation Hedging

The Drawback: Illiquidity

Two type of Income from Residential Investment:

1.Operating income – Rental

For example a Tenant occupied condo or house

2.Capital Gain – Value/Price appreciation

For example a beach front land or off the plan acquisition

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Commercial - Office Categories of Income producing properties

Different categories of Offices • Grade A

• Grade B

• Grace C

• Owner occupied

Why invest in Office Buildings?

• Attractive stable cash flow (long tenancy)

• Less complexity in development

• Operating Costs paid by the Tenant (Service charge)

From Investor view point, the indicator of performances: • Effective Rental Rate (Rental – free lease period- other free incentives)

• Occupancy

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Grade A - Saigon Center Grade B – Me Linh Point Grade C – Empire Tower

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Example of suggested Tenant division

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Commercial - Retail Different categories of Retail

Shopping mall (Community centre, Regional Center, Superregional Center)• Single Shops

• Department Store

• Food Court

• Entertainments

• Supermarkets/Hypermarkets chains (Big C)

• Convenience store chain (FamilyMart and CircleK...)

• Specialty retail stores chains (Electronic store...)

• Franchise (Coffee Bean, McDonald..)

• Single Independent Shops

• Markets

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Shopping Mall Franchise

Convenience Store

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Commercial - Retail Indicator of performances: Rental Rate, Occupancies, Turnover share

Rental highly depended on floor level

Brand standard and image is extremely important, certain brand require specific space, for example

Will only move to prime streets in core CBD

They could not find any suitable space for the brand design had to “build it from ground”. Same for the first

property of

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One of the Most Expensive Retail Space in Asia...

Rental price over $800 per sqm/month!!April 2014

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Several Different types of Hotel

• Star Grading ( From 1 to 6)

• Full Service or Limited Service

• Target Short Term or Extended Stay (serviced apartments)

• Design (standard or boutique)

• Independent or Part of a Hotel chain

• Target Leisure or Business Guess (conventional centre)

• Hotel or Destination Hotel (for example with Casino)

Hotel and Resort

Main characteristic is the extremely short tenancy and complexity in management.

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Various Asset Classes of Real EstateFirst Class - Property Business and Development Cycle

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City Five Star

Boutique

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Budget Hotel


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Economy Hotel


26Serviced Apartment


Hostel


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Timesharing Resort


Destination SpaLuxury Resort

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Theme Park


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• Highly competitive marketplace with several similar product

• Developer seeks to increase rates and occupancy

• Developer seeks to reduce operating costs

• Residential component in need of an identity

• Residential component to increase trust of buyers

• Developer with low experience in the hospitality field

• Developer seeks low or no involvement in daily operations

• Bank requesting developer to involve a professional management company

Why may an international brand be required?

Hotels

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Industrial Importance for Economic Growth, first driver of economy in Developing Countries.

Some of the Industrial Real Estate are under:

1. Industrial Parks

2. Warehouses – production, storage,

3. Ready build factories

4. Logistic Park

Industrial park business:

• Land Sublease

• Ready build factories

• Build to Suite Factories

• Mixed use complex offering office or hotel

Specialized IP: Data It , Green, Export special economic zone

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Mixed Use ProjectMost common are commercial:

A combination of residential, commercial, cultural, institutional, or industrial uses, where those functions are physically and functionally integrated, and that provide pedestrian connections.

• Strong synergy among components

• Difficulty in single asset disposals

What are the common Mixed-Use ?

1. Office + Retail Podium - win win

• Benefits for the office tenant are usually access to F&B, Gym, coffee shops

• Benefit for retail tenant is flow from office worker or visitors2. Hotel + Office + Retail

3. Serviced Apartment + Office

4. Residential + Retail

5. Residential + Resort (Condotel)


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Kumho Asiana ComplexFirst Class - Property Business and Development Cycle

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Bitexco Financial TowerFirst Class - Property Business and Development Cycle

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Hyatt Regency – Danang First Class - Property Business and Development Cycle

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Property “People”

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Property “People” First Class - Property Business and Development Cycle

Who is involved in the property business ?• Investors

• Banks

• Consultants

• Community

• Tenants

• Operators/Brands

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Property Developers

Companies specialized in Property Business

In charge of the overall development project

Planning-Building-Sale

Strong in-House Team

Clear Exit Strategies !

• Build and Hold

• Build and Sale

• Build and Lease

• Lease and Sublease

• Refurbishment

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Property Developers Case Study:

JV-Build-Lease-Sell

• Centre Point is Vietnam’s first environmentally friendly office building in June 2009 and it has been positioned as Ho Chi Minh City’s most sophisticated and high profile office buildings.

• Since opening the 30,000 sqm project has attracted many international companies including Toyota, Bayer, Merck and Kimberly Clark, underlining the appeal of Centre Point’s strategic location, strong green credentials and excellent value for money.

• Refico exited this project in June 2011

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Property Investors

Investor only or Investor/Developers

Different Type of property Investors

• Property fund

• Pension Fund

• REITS

• Investment Fund with property mandate

• Private Equity

• Family office

Usually passive player, do not develop, only participate

Favour Existing Asset without the “headache” to build!

Best favoured asset:

Operating Office Building with a good tenancy structure (mixed tenancy, international companies)

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Firms and Companies (property not core business)

Why they invest in Real estate?

Extra Profit to invest (investment diversification)

Ownership of lands and expiring period to develop

Business Diversification (Sacom Cable)

Authorities relationship

Relocation of Office Building (headquarter)

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Government and Relevant Authorities

The most important player

• Decide land allocation and city planning

• Decide taxation on land holding

• Decide relocations price

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Banks

Extremely important contribution to the Real Estate

Main contribution is lending but they are also investing as developers (headquarters)

They have strict limitation as developers

Two main type of Lending:

Private Household – for single individual to buy primary residences

Project Financing – for developer to finance the project

There are several different types of loan, some of the main ones are:

• Construction Loan – used from “day 1” for the construction, usually collateral is the land value

• Bridge Loan – used to complete the buildings or in special situation where additional capital is needed to reach certain threshold

• Refinancing – used usually upon completion of the building or after some years of operation when the operation risk is lower and thus the interest rate offered.

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Consultants:

Companies specialized in Property Business, some of the main ones are:

• Design Consultants (Architects, Interior, Master plan..)

• Engineering (Civil)

• Legal Firms

• Property Independent Brokers

• Marketing and branding (Quo or Red)

• Property Valuation Companies

• Real Estate Consultants (Alternaty)

• Hotel Operators

• Property Management

• Marketing and Sale consultants

All come at different stages of the development process

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Development Stages

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Development StagesFirst Class - Property Business and Development Cycle

Are you ready to start your project?

Your next steps will be:

• Planning

• Financing

• Pre-Construction

• Construction

• Pre-Opening

• Opening

• Sale

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Planning Stage First Class - Property Business and Development Cycle

Planning stage:

From the Idea to the Building

The development period and complexity should depend on the type of building and size.

However in Vietnam it depend much more on:

• Financing

• Company Internal Structure

So, when to start? Look at the Property Cycle!

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Step 1 - Identify main investment criteria

Those can include:

• Location (Country or city or specific area or street..)

• Type of Asset (Land, Under Construction, Distressed, Operating)

• Enter and Exit Strategy (Operate, Lease, Sale the Asset upon completion)

• Investment Budget and Return Criteria (IRR, Trophy Asset)

• Asset Identification

Step 2 – Due diligences on the land or building

This can include:

• Legal ownership on the land (lease hold, free hold, tenures, ownership structures..)

• Permitted use (commercial, residential, density of construction, height limits..)

• Surrounding Infrastructure (electricity connection, sewage system, road, water plumb)

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Step 3 - Identify Highest and Best Use - Feasibility Study

Those can include:

• What assets to build (Residential, Commercial, Mixed use..)

• What market positioning? (Luxury, Grade A, Low income housing)

• What size and facilities? (100 condo or 50 villas? 50 or 400 hotel rooms?)

• What sale structure and sale prices?

• What construction cost? What operating costs?

Result of the study: “What development is commercially feasible?“

“What is the expected IRR?“

Who does it? External Consultants or in house team of analyst

Step 4 - Valuation of land or building

Valuation can be for different purpose, is this case is for acquisition.

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Step 5 - After identifying the development directions – Development Details

This can include:

• How many car parking in the condo building?

• Where to locate the swimming pool?

• How many elevators for the Grade C office?

• How many restaurants in the four star hotel?

• Which floor for the Cinema in the Retail podium?

This Report became a “ Design Brief” to hand to the Architects or Master planer

Step 6 – Design and Master Plan

• Concept Design (first stage of design)

• Maser Plan

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FinancingFirst Class - Property Business and Development Cycle

When all the documentation are ready:

• Legal ownership due diligence

• Feasibility Study

• Master Plan and Concept Design

• Valuation Report

Applying for Loan

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Several different source of financing, the main options are:

• Equity (expected return: 35% - 100%)

• Mezzanine fund (expected return:10% - 20%)

• Senior debt (expected return: 5% - 12%)

• Pre sale (expected return: 15% - 25% on completed price)

Do I need an Investment Memorandum? What is an IM?

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1) Case Study – Alternaty Hotel in Nha Trang

35% is land value

800,000

400,000 Equity

150,000

350,000 Pre Sale

Bank Loan

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•Equity

•Pre Sale / Sale

•Bridge Loan

•Operating Loan (Refinancing)

•Opening

•Building Top up

•Pre Sale

•Land acquisition

Financing – Case Study First Class - Property Business and Development Cycle

2nd case study - Central Vietnam

Condotel – Residential - construction start in 2010

1.000.000

6.000.000

2.000.000

2.000.000

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Pre ConstructionFirst Class - Property Business and Development Cycle

Select your Best Team

Design and ConstructionBuilding Operation and Management

Sale TeamLegal Team

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Large Developers have In-house Team Smaller Developers Outsource

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Construction and Design:• Architects Exterior – Main Task (Exterior Design, Design supervision)

• Architects Interior – Main Task (Interior Design, Interior Material Selection)

• Master Planner – Main Task (Master Plan design and circulation)

• Landscape Designer – Main Task (Landscape design and greenery)

• Project Management – Main Task ( Coordination and Supervision)

• Civil Engineer – Main Task (Design and Supervision of building structure)

• Mechanic Engineer – Main Task (Design and Supervision of mechanic structures)

• Quantity Surveyor – Main Task (Survey of Construction Costs) and Supervision of mechanic structures

• Construction Manager – Main Task (Supervision Construction)

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Marketing Team• Marketing Team – Task include (pricings, branding, sale organization, general

marketing direction..)

• Sale Team (Brokers) – Task include ( sale, sale, sale and sale following up..)

• Digital Marketing Team – (website, social media, direct emails..)

• Event Organization – (pre launch event, press conferences)

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Example of Schedule

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ConstructionFirst Class - Property Business and Development Cycle

Appointment of Main Contractor (tendering process)

Stages:

1- Land Preparation (site flatting, earthwork, demolishing buildings, removing trees, site boundary..)

2- Buildings Foundations (excavation and timbering, building foundation..)

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Make sure your initial 2 steps are done correctly ...

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Construction- Superstructure (flooring, slabs, roofing...)

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Fitting Out and Completion

Well done! --- but now you need to make money out of itApril 2014

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Pre Opening - OperationFirst Class - Property Business and Development Cycle

Pre Opening period used for training and pre operation control.

• The first man on the job is the GM (for hotel) or PM (for commercial) – 6/12 months before opening

• Second are the Head of Departments (HR, S&M, Finance, Maintenances...)- 2/4 months before opening

• Third are the staff – 1/2 months before opening

This period is used for implementation of SOP (Standard Operation Procedures)- which is a guideline of operational procedures for each department and each staff.

The Head of Department is in charge of the training based on the SOP.

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Sample of Hotel Staff Chart

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Standard Operating Procedures (SOP’s)

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Managed by Owner Third Party Management Head Lease

•Owner •GM (or PM) •Head of Departments•Staff

•Owner

•GM (or PM) •Head of Departments•Staff

•Management Company

•Owner

•Head Leasee•GM (or PM) •Head of Departments•Staff

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Case Studies

Thank You

Disclaimer: This document has been prepared in good faith and for general informational purposes only. Nothing herein contains investment, legal, tax and/or other advice and investors should seek independent professional advice before making any investment decision. While reasonable care has been taken to ensure that the sources of information herein are reliable, no guarantee is provided to the accuracy or completeness of such information (and the same may not be independently verified or audited) and no liability is accepted for any inaccuracy or omission.