Development as an attractive way to acquire prime real estate assets –an emerging trend?Market observations by Dr Peter Moertl, CEO Premier Suisse Group

Zurich November 22, 2016: As real estate investments have become an attractive asset class for professional investors seeking higher yields and potential capital gains, many are looking at the development of new or existing properties as a way to further increase their returns. A recent survey by a leading global consultancy firm identified the appetite amongst investors to invest in development properties as a new emerging trend throughout Europe: Over 52% of 550 surveyed leading European professional real estate investors stated that they are or would consider investing in development rather than existing fully operational real estate properties.

Source: “Emerging Trends in Real Estate, Europe 2016”; PWC/ULI

Though developing real estate projects can provide better returns and potential capital gains at resale, such an investment does not come without risks.

The current economic environment has never been more appealing for development investments: a low interest rate environment, a rekindled fear of rising inflation, particularly after the recent US elections, and the lack of attractive alternative investment opportunities in the market. On the other hand, real estate developers are faced with more restrictive financing possibilities (i.e. Basel III regulations for commercial banks), the demographic developments in many European countries including Switzerland and environmental restrictions both in terms of building sites and the construction of the project itself. These are new challenges and will require a new approach to the development in order to create sustainable investments. Next to the classic developments on unbuilt sites, the redevelopment of existing and somewhat outdated properties will gain importance in the future (i.e. “value add “properties). The lack of building sites, legal restrictions in many cities, but also economic realities will make redevelopments respectively revitalization projects one of the future trends in real estate development.

Some of the big stroke components developers will have to consider thereby are:

Economic Feasibility of the project:o A solid evaluation of the project

developmento Proper evaluation of the risks and

installation of tested risk management toolso Sourcing of both classic and alternative

financing of the development will require a

rating and a thorough feasibility testing of the development (private debt and equity providers have gained in importance in that field recently)

Basics of the property development:o Concept of the developmento Professional research for the appropriate

propertyo Thorough markets and location analysis

Legal ramifications for a developmento Local building laws and regulationso Project organization and management (e.g.

architect, general developer contracts)o In Switzerland national laws such as Lex

Koller or Lex Weber

With these parameters in mind and without throwing caution to the wind, investments in developments of either new site or value add developments, can make total returns quite attractive. That way investors not only can create a new “shiny” asset for themselves, but it also gives them control over the process.Premier Suisse Group is an independent real estate company in Zurich and Geneva. We operate through our two companies, Premier Suisse Estates and Premier Suisse Investments. We focus on transactions that require innovative client centric solutions, discretion and in depth professionalism across and within all sectors of commercial and luxury real estate. Our Clients include Family Offices, Private and Institutional Investors in Switzerland and abroad.