peter champness presentation
Post on 05-Apr-2018
225 Views
Preview:
TRANSCRIPT
-
7/31/2019 Peter CHAMPNESS Presentation
1/13
Real Estate Risk Assessment
PaM
SustainableReal
Estate
Markets
Restoring
Confidence
in
Financial
Markets
Peter Champness
MIPIM
Cannes
March 2011
-
7/31/2019 Peter CHAMPNESS Presentation
2/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
BackgroundtoRiskAssessmentinRealEstate(PaMModel)
TEGoVA2003standard
EuropeanPropertyFederation20032005report
RICS2007report
BasleII &BasleIII
UNECE/REM
(i) UNECEPolicyFrameworkforRealEstateMarkets Principle7(Transparency/Valuation)
(ii)FutureadvisoryworkREpropertyandmarketriskevaluationforREbackedfinancial
products
Investors and financial market analysts require a more scientific approach tounderstanding holding risk, liquidity and volatility in RE Markets.
The regulatory gap exposed by inadequate information on real estate risk has eroded
prudent mortgage underwriting practice and hampered the effectiveness of monitoring byregulators and the role of Rating Agencies.
-
7/31/2019 Peter CHAMPNESS Presentation
3/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
Volatility acharacteristicofrealestatemarkets.
Realestate
investment
is
differentiated
from
stock
market
investmentby:o Heterogeneityofassetsandplayers
o Illiquidity Largelotsizes
o Significantlygearing bankborrowing
o Cyclescharacterisedbyleadsandlagsduetosupplyconstraints
o Mediumtolongrunholdperiods
o Opacity limitedmarketdata
Lackoftransparencyandilliquiditycontributetovolatilityandundermineinvestorconfidence.
-
7/31/2019 Peter CHAMPNESS Presentation
4/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
Howdowemanagerealestaterisk?
Indices,suchasIPD,trackhistoricmarketperformance.
Valuationassessesspotmarketprices. Modernportfoliotheoryfacilitatesportfoliodiversification,concentration;
moderatingsectorrisk.
The quality of real estate as collateral for loans is recognised by credit riskscoring, loan to value ratios (LTV) and interest cover.
Research; Identifying the demand and the supply pipeline and shifts in capitalmarkets provides transparency and aids understanding of the dynamics of realestate markets.
AmorerobustprocessoffundamentalanalysisofREassetsisvitaltomoveriskmanagementoutoftheDarkAges.
-
7/31/2019 Peter CHAMPNESS Presentation
5/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
ActiveREmarketsandeconomiesdependonbanklending
RELendingisconstrainedbybalancesheetissues,regulatorygoldplating,lackofinterbanklending&moribundsecuritisation(ABS)markets
ReignitingthemarketforABSisessentialtofreeupbankbalancesheetstoenablelending,facilitatingeconomicgrowth
Looking
ahead,
aself
sustained
revival
of
the
ABS
market
requires
fundamental
changes.Itishightimetorisetothechallengesoftransparency,standardisationandproductsimplicity.Thisiswheretheindustryhastostepupitseffortsinordertohelpdecisivelyinrestoringconfidenceinthesecuritisationmarkets.
JosManuelGonzlezPramooftheEuropeanCentralBank
Fundamentalreal
estate
analysis
(PaM)
can
enhance
confidence
in
theperformanceofdebtandequity investmentinrealestateandderivativefinancialproducts
-
7/31/2019 Peter CHAMPNESS Presentation
6/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
PROBLEMOFRISKINREALESTATELENDING
APPROACHTOREALESTATELENDINGRISK
PROPERTYMARKETANDRISKRATINGSYSTEMS
REVIEWOFVALUATIONSTANDARDS
OUTLINEOFTEGOVAPROPERTYMARKETANDRISKRATINGSYSTEM
PRACTICALAPPLICATIONOFPROPERTYMARKETANDRISKRATINGSYSTEMS
REMRECOMMENDATIONSANDPOLICYOPTIONS
Potential scope of work REM-Real Estate Risk Assessment
-
7/31/2019 Peter CHAMPNESS Presentation
7/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
disastrous 10
very poor 9
poor 8
mediocre 7
slightly belowaverage
6
average 5
slightly aboveaverage
4
good 3
very good 2
excellent1
ExampleofthenewapproachtoriskinitiallypromulgatedbyTEGoVA PaM
PaM is complementary to Valuation. But Valuation sets out only what a typical
purchaser would pay in the spot market on a specific valuation date. Valuation can be
affected by transient market sentiment. It is no indicator of the medium and long
term sales prospects of a property.
PaM is a method of measuring the underlying quality of a property and midterm
marketability.
PaM provides an analysis of the risks and potential inherent in a property or portfolio.
Credit risk scoring is not specifically incorporated the focus is on the asset.
Itassessesfourkeypropertyfundamentals:
i Market
ii Location
iii Property
iv Cashflow
-
7/31/2019 Peter CHAMPNESS Presentation
8/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
OverallPropertyMarketRating110
Quality/marketability/sustainablevalue
4Quality
of
cash
flow
30%
Tenantsituation/rental &valuegrowth/lettingprospects/vacancysituation/expenses
3Property 20%
Construction/layout/sustainability/energyperformance
2Location 30%
Suitability/standing/transportinfrastructure/facilities/environment
1MarketEnvironment 20%
Socioeconomic/demographic/realestatecycle
disastrous 10
very poor 9
poor 8
mediocre 7
slightly below average 6
average 5
slightly above average 4
good 3
very good 2
excellent 1
Property and Market Rating Model
-
7/31/2019 Peter CHAMPNESS Presentation
9/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
RealEstateMarketRatingiscomparabletoRatingAgenciesCreditScores
Aaa to AA3 A1 to A3Baa1 to
Baa2Baa3 to Ba1
Ba2 to
Ba3`B1 B2 B3 to Caa Moody's
AAA to AA A+ to A-
BBB+ to
BBB BBB- to BB+
BB to
BB-B+ B B- to C
S & P
excellent very good goodabove
averageaverage
below
average
poor/
special
mention
very poor/
substandarddoubtful loss
Internal Bank
Ratings
1 2 3 4 5 6 7 8 9 10
Property &
Market Rating(PaM)
Excellent very good goodslightly above
averageaverage
slightly
below
average
mediocre poorvery
poordisastrous
-
7/31/2019 Peter CHAMPNESS Presentation
10/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
PaM
Identifies: UnderlyingAssetQuality/Sustainability ofvalues
RelativeVolatility similartoBetaratings
Liquidityorrelativemarketability
Provides: Enhancedtransparency
Enables: Informedanalysisandportfoliodiversificationbyrisksegmentation(abottomup
approachtorisk)
Effectiveportfoliomanagementoptimisingfutureperformance
Riskappraisal
-
7/31/2019 Peter CHAMPNESS Presentation
11/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
HowPropertyandMarketRatingaddvalue?
1. Investors
(DraftAIFM
Directive
requiresRiskManagement)
1. Transactions
2. PortfolioManagement
3. Analysis
4. Marketing
5. Reporting
2. Banks
1. BasleIII
2. Loanpricing
3. Management
4. Coveredbonds/securitisation
5. Riskmanagementteamdialogue
withproperty
bankers
3. Valuers(KSWS3)1. Valuationcheck
2. Consistency
3. Riskpremiums
4. Analysis5. Qualityofadvice
Risk
Economic
Environment
Asset
Cash Flow
Property
Market
-
7/31/2019 Peter CHAMPNESS Presentation
12/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
Property&MarketRating
PaMSoftware
Development
Concept
Concept:
Lowcost
Userfriendly
Quickandefficientinuse
o Developmentindiskformat(CDs)
o FutureDevelopmentmaybewebbased
PaM
CashFlow
PropertyEconomy
-
7/31/2019 Peter CHAMPNESS Presentation
13/13
improvingperformanceinbankingandrealestateinvestment
itrium2011
Contact
Peter Cha mpness
Itrium Limited
Oa kdene HouseMayfield
East Sussex TN20 6EJ
United Kingdom
+ 44 (0) 759 7979 689pchampness@itrium.co.uk
top related