Bricks on the balance sheet - The superior way to dispose of property resources

2002

Setting up joint-venture companies is one possible way of marketing non-operating property – a profitable option for sellers and investors alike

As more and more companies look to the capital markets as a source of funding, real estate is tending to lose its traditional function as a form of collateral. At the same time, international accounting concepts are bringing about a change of mindset: in line with IAS and US GAAP, German companies are beginning to state their real estate at its market value – i.e. at a significant multiple of the low book values currently dictated by the HGB, Germany's Commercial Code. This new practice increases the reported volume of tied-up capital on which the capital markets demand interest. In other words, holding a large quantity of real property effectively erodes shareholder value. Quite logically, this is causing shareholder value-driven companies to examine the basic strategic options available for dealing with real estate.

In this article, Dr. Torsten Henzelmann, Associate Partner, and Peter Greppmair, Project Manager, outline the option of launching joint venture companies as a way of maximizing the profitability of real estate holdings.