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WHY?
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Vietnam is growing fast but expansion can be toxic Growing economies typically have:
Volatile inflation 2011 estimated at 19% Rising construction costs Highly fluctuating energy costs A cautious banking system offering limited credit Increasing regulation on developers and landowners Decree 95 Rapidly increasing construction quality decreasing the age of building obsolescence Commoditization of the market very difficult to differentiate your product Everyone smells the cash and wants to build as much as they can as soon as they can
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Rents have been on the slide for nearly 3 years A declining rental structure represents a declining profit margin on your original Feasibility Study! I BET YOU HAD 5-10% RENTAL GROWTH PER ANNUM? Selling floors at a slight premium offers a hedge against further decreases. g Floor purchase is a growth area but will it last?
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Market Analysis
The Nightmare (likely) Scenario!
1 You secure a tenant but on a lower rent and shorter lease with extended rent free 2 You have to sign a contract in VND the VND devalues 5-10% each year 3 At renewal the new shiny building down the road offers a great deal 4 You have to offer the same or lower to keep the tenant & your rents slide 5 - Your investment value drops with the rents 6 Your cash flow drops and you cant afford to stick to your original refurbishment schedule 7 tenants see the decline in quality and leave in 6-10 years
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Market Analysis
Panic Not! there is a blue sky scenario
1 Diversify your asset with some long terms leases You are guaranteed a service charge from these tenants (variable) They will agree to a sinking fund / payment for important improvements (new lifts, floor, lighting etc) through negotiation keep your building current Offset potentially high vacancy an empty floor is not a $0 cost you will have to cover the service charge get help from the long term tenant
2 The building will always be a certain % full (no tenants like an empty building) 3 A large company such as Petro Vietnam, EVN, Bank will always hold prestige in a market maintaining a good rental and attracting other tenants 4 A key anchor tenant is likely to be a growth company and will expand in your building they will also periodically take short term 3-5 year space in good times 5 If the contract is good and they are an owner occupier it will not damage the investment value for your remaining space.
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Financial pressures
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Market Analysis
Cost of Finance Can you start, finish, maintain your project? Cost of finance is at high % with a loan to value rate of 30% Banks have been told to decrease their exposure and the credit line is set to dry further B k i Banks increasingly calling i d b and penalties associated with i l lli in debts d li i d ih default very high high % of default? Selling a floor can still secure a market rate ensuring your original profit margin over construction costs and finance for this section of the property Decree 95 is a real risk. Leases are fixed at 3 to 5 years. Every devaluation of the VND will loose you money, even with annual rent reviews you will loose for 3 quarters. Selling early will offset the risk of devaluation for a section of your property
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Stay in front
Cost of finance can impact on the rental price. If you need to secure loans the interest will either need to be passed on to the tenants in rent or to you in reduced profits. Selling a floor can raise quick upfront payments and depending how the payments are structured assist in the completion of the building. You can therefore raise capital but retain p profit margin and remain competitive Also an upfront capital payment can assist you with the cost of running the o ith r nning building post opening.
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WHO?
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NO Investors looking to sublease Start up businesses Small space occupiers 100 -200 sqm High density occupiers 1 staff to 5 sqm
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How to choose?
How to chose your tenant? Look at their accounts? 2-3 years trading history Look at the company structure H How many staff do they have? t ff d th h ? What hours do they work? Is this a growth / stable industry? You want a long term safe tenant You dont want them sub-leasing if possible What i h i Wh is their motivation f b i not l i i for buying leasing? i ? Are the expanders can you lease / sell them more space in the future Why important? y g pay y g 50 years service charge to p y they need to be strong! Your other tenants must not suffer!
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HOW?
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What to sell?
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Pricing
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Price
In order to assess this you need to look at QUALITATIVE and QUANTITATIVE aspects of the property QUALITATIVE Does it have what tenants want? Does it have a modern specification that will age well in 10 10, 20, 30 years time QUANTITATIVE What are other buildings available at? Is this reasonable What Wh t rental price can b achieved? t l i be hi d? Potential for rental growth? How long will it take to pay back the initial investment
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TheCriteriaandSubCriteria
CBREuseanumberoffactorstodeterminetheprice p ofaprojectforbothoccupiersandinvestors
Location District,DistancetoCBD,OnMajorRoad,Qualityof CommercialLocation,SurroundingRoadNetwork,Growing BusinessDistrict Business District ExternalConstructionQuality ExternalImage,BuildingMaterialQuality,Glazing(Single/ Double),CurtainWallWindows,Landscaping CommonAreas N tA NetAreaPerFloor,SizeofLobby(sqm),InternalWalls P Fl Si f L bb ( ) I t l W ll (marbleetc),FloorFinish,ToiletQuality p InternalOfficeSpace FloorToCeilingHeight(2.7m)Lighting,RaisedFloor,Pantry
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Criteria&SubCriteria Contd
BuildingManagement SecuritySystem,BackUpPower,Telecommunications,Air ConditioningSystem,FireProtectionSystem,Building g y , y , g ManagementSystemQuality Lifts Lift B d Lift C LiftBrand,LiftCapacity,NumberofLift,QualityofLifts,Lift it N b f Lift Q lit f Lift Lift Lobby,Liftspersqm Parking Parking Car,Motorbike Amenities Bank,Restaurant,GeneralSurroundingArea ExpansionCapabilities None Good Excellent None,Good,Excellent
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200.0
100.0
50.0
The Maths!
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Multiply py Together
Example
(20*12) * 7.12
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Banners
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Websites
CBRE website
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Calling directly
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Advertising tools
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Things to consider
Price Payment structure Service charge Sinking funds Sub leasing/ assignments Paperwork Signage rights g g g Parking Area (measurement methods) Right to renew Insurance Notarized agreement
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You have secured a tenant You must now negotiate the contract. There are some important factors to note in this stage:
Price Through CBRE analysis you will be able to determine a fair price for the property Payment structure T i ll P Typically: 10% deposit signing Memorandum of Understanding 80% - Signing Lease Agreement 10% - Handover * Based on complete building for under construction payment term extended.
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Service charges What is included in the services? Is the rate variable and is the increase capped? Is the building managed by you or a third party? When is the charge reviewed? Sinking Funds y p p payment for large items g Have you set up a periodical p y such as replacement of lifts / AHU / Chiller Sub-leasing / assignment S bl i i t Is it possible to sub-lease / assign (vital for investors) Do they need to get landlords approval (can you refuse) Can they decide upon your sublease rental rate?
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Papers & Documents A lawyer should check documents Ownership License you will need to produce Construction Li C t ti License you will need t produce ill d to d Authorized Entity (in case of a Joint Venture) Signage right Will you permit a right to signage? Is this right transferable to sub-tenants? Car / Motorbike parking Will you grant free spaces & how many What is the cost per space Is it an allocated space? Or can the management decide
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Area Gross / Net How is this calculated (including pillars etc) After Lease Expires Can they renew Do you have to pay again? su a ce Insurance Who purchases? Landlord typically for the structure you for your internal space Notarized Agreement Must be notarized need to submit certain documents
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SUMMARY
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2. Analyze price
4. 4 Negotiate contract
CBRE will analyze your property and advise a space to sell CBRE will help you choose the best price CBRE will help you market and find purchasers CBRE will ensure you have a strong contract
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Significant Deals 2011 CBRE A leading consultant in Long Term Leasing Nokia 17.25 Hectares (Industrial) Sika Sik 1 H t Hectare (I d t i l) (Industrial) PVEP 7,300 sqm (Offices) First Bank 1,000 sqm (Offices) Fubon Bank 1,200 sqm (Offices) Parkson 25,000 sqm (Retail) Ascott 20,000 sqm (Serviced Apartments) ( )
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www.cbrevietnam.com
Over 300 markets in more than 50 countries
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Thank You
We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy and make , y no guarantee, warranty or representation about it. It is submitted subject to the possibility of errors, omissions, change of price, rental or other conditions, prior sale, lease or financing or withdrawal without notice. We include projections, opinions, assumptions or estimates for example only, and they may not represent current or future performance of the property. You and your tax and legal advisors should conduct your own investigation of the property and transaction.
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