I have received more than 100 offers from real estate brokers in 2020. None was worth an investment.

Plot prices have dramatically risen in recent years. What are the main reasons; population growth, urbanization and the natural scarcity of land.

This trend makes devlopers face challenges, doubly so in combination with also rising building prices. If we compare two sample calculations for average standard floors in Vienna we see diminishing margins.

Table: Development cost in EUR for an average standard floor in Vienna per sqm net rental area (gross)

It is correct that sales prices have risen in recent years. However, looking at the table above the dilemma developers face becomes obvious. A few years ago developers achieved a 25% mark up at a price of EUR 5.000 per sqm. Given todays input factor prices the developer needs to achieve sales prices above 7.000 sqm to meet this goal. Even in todays setting this mark seems to be out oft market.

So what can developers do?

Option 1: Setting up a multi level procurement structure

Der „Kunde ist König“ lautet ein altes Sprichwort. In Zeiten in denen der Grundstücksverkäufer König zu sein scheint lohnt sich also vielleicht ein Blick auf die Vertriebsseite. Es ist z.B. möglich Print- oder Fernsehwerbung mit der Message „wir kaufen Ihr Grundstück“ zu schalten und wird dies in ähnlicher Form von großen Maklerbüros auch praktiziert.  Mir persönlich erscheint jedoch der Strukturvertrieb das bessere Vorbild.

This is what a multi level procurement might look like:

• Team 1 searches for plots based on predefined criteria (e.g. max 200m from next tube station, specific post code, old building, …) and does research on the owner Team 2 calls the owner and acquires an appointment Team 3 meets with the owner, covers relevant information on the plot and on the owners desire during the acquisition process
• Team 2 ruft den Eigentümer an und verkauft ihm zunächst einen Termin
• Team 3 fährt (ev. gemeinsam mit Team 2) zum Eigentümer, nimmt nicht allgemein bekannte Information auf und weckt bei diesem die Begehrlichkeit in einen Verkaufsprozess zu treten

The members of each team need completely different skills. Team 1 members are typically researchers which might have a background in headhunting. Team 2 members might have been former brokers, Teams 3 asset- or development managers.

Option 2: Leasehold

Another option to acquire plots in times like these is to acquire a leasehold. There are very long term oriented owners like churches, insurance companies or family offices that are willing to grant a 100 years leasehold but who are not willing to sell.

Leasehold plots are very common in anglo-sexan world, however are still rare in Austria. What is the major advantage from the developers perspective is the price. However, it should be noted that not every austrian broker has the know how to sell leasehold property.

As the topic is quite complex I will cover this in a separate article in the upcoming weeks.

Option 3: Real Estate barter

Another possibility to motivate landowners to disassociate from their plots in times of rising real estate prices and expected inflation is to offer a real estate exchange. Here the landowners bring in their property into the development. Upon completion they receice dwellings in the equivalent value of the property, which they can rent and which are thus likewise a protection against inflation. From the developer's point of view, this option is very easy on liquidity and therefore attractive. It becomes particularly interesting for the developer if he succeeds in concluding such a deal with the owners of several adjacent plots of land. In this way several separate properties could be developed. Object 1 is parried and given to the former landowners instead of a cash payment, the other objects are sold on the open market.

Of course, the options described above might also be combined. Thus the negotiation team of a multi level procurement organization can offer the acquisition of a leasehold property or a real exchange as alternative to the classical acquisition to landowners.