Land Lease
. Introduction
LandLease (Asia) Property Limited (LL) wants to infiltrate the Hong Kong real estate sector. Louisa Martin and her senior advisor Marco Li have two main possibilities to achieve this goal, direct and/or indirect investment. By investigating the different investment possibilities they want to understand the merits and demerits, including risk and return of the possible investments. Bearing these outcomes in mind, they can form a new strategy for the company.
We will discuss 4 different subjects as stated in the assignment: * The merits and demerits of direct real estate investing are highlighted; * The potential benefits for LL of allocating its assets to indirect real estate; * The opportunity of assembling real estate property assets for listing as a REIT; * Propose a strategy for LL, taking into account the fundamental issues and opportunities available to LL.
2. Direct Real Estate investments, merits and demerits
As is know, LL operates mainly in direct commercial investments back in Australia, where a lot of benefits are earned in this way of investing. Geltner and Miller (2007) give a definition of direct real estate investments: direct ownership of the underlying asset.Two possibilities of direct investments in Hong Kong arise in the LL case: ownership can be required or one should engage in direct development of assets to include in the portfolio.
High returns are generated when investing directly in real estate; this is generated by cash flows from lease contracts. They can use more debt financing which can favour their tax situation.
Another merit is the possible increase in NPV. By owning the title directly, the company can use their own expertise and knowledge to change the negative NPV of a project to a positive NPV.
Also by investing in direct real estate the company is able to choose their investment sector. Again they can use their own expertise and knowledge, which can reflect in high returns.
The drawbacks
LandLease (Asia) Property Limited (LL) wants to infiltrate the Hong Kong real estate sector. Louisa Martin and her senior advisor Marco Li have two main possibilities to achieve this goal, direct and/or indirect investment. By investigating the different investment possibilities they want to understand the merits and demerits, including risk and return of the possible investments. Bearing these outcomes in mind, they can form a new strategy for the company.
We will discuss 4 different subjects as stated in the assignment: * The merits and demerits of direct real estate investing are highlighted; * The potential benefits for LL of allocating its assets to indirect real estate; * The opportunity of assembling real estate property assets for listing as a REIT; * Propose a strategy for LL, taking into account the fundamental issues and opportunities available to LL.
2. Direct Real Estate investments, merits and demerits
As is know, LL operates mainly in direct commercial investments back in Australia, where a lot of benefits are earned in this way of investing. Geltner and Miller (2007) give a definition of direct real estate investments: direct ownership of the underlying asset.Two possibilities of direct investments in Hong Kong arise in the LL case: ownership can be required or one should engage in direct development of assets to include in the portfolio.
High returns are generated when investing directly in real estate; this is generated by cash flows from lease contracts. They can use more debt financing which can favour their tax situation.
Another merit is the possible increase in NPV. By owning the title directly, the company can use their own expertise and knowledge to change the negative NPV of a project to a positive NPV.
Also by investing in direct real estate the company is able to choose their investment sector. Again they can use their own expertise and knowledge, which can reflect in high returns.
The drawbacks