It’s a common knowledge that during financial crises, the value of most asset nosedives; owing to a number of unfavourable economic indices such as: spiking interest rate, slow Gross Domestic Product (GDP), dwindling investors’ confidence, and a number of other fluctuating economic components.
The truth is that Nigeria’s current economic situation boasts of all the signs and more. This is expectedly compelling asset class holders, especially Real Estate investors, promoters and developers, to seek survival strategies that can help preserve the value of their assets, because Real Estate draws significant impetus from the condition of the economy.
It therefore gives to reason that for Real Estate investors and promoters to successfully build or invest in this current economic dispensation, they must employ time-tested strategies that can defend the value of their assets, reduce lifecycle cost on the assets and more importantly; maximize their return on the asset (ROA).
One strategic imperative for asset managers, owners or developers to achieve the aforementioned is to look beyond the phase of design and construction, and pay adequate attention to the total lifecycle of their assets, rather than just the cost of design construction. This is important because besides design and construction (which constitute about 20 percent of the total asset life cycle) unalloyed attention should equally be given to the other 80 percent of the lifecycle and strategic elements in the defense of value.
These strategic elements include: occupancy, repair, rehabilitation, maintenance, disposal, etc. So for those who are building or investing in Real Estate in this recession, here are some of the critical areas to rethink if you want to retain your asset value:
Design: This is the conceptualization phase of a project, but very important to the eventual life cycle cost of the asset because if given adequate attention, the total lifecycle cost of the asset can be kept at controllable level in the face of unfriendly economic climate. Therefore from design stage, promoters must pay attention to balance functionality, maintainability and operationability of the asset rather than aesthetics.
Procurement: One of the areas that has proven to heap huge cost on Real Estate asset classes is procurement. If you procure wrongly, you eventually pay the price in the long run. It is advisable to procure materials based on quality, cost, favourable payment terms, delivery condition, pedigree of the vendor and after-sales support. In spite of operating in a distressed economy, attempting cost saving through wrong procurement method will mean kicking the can down the road. The asset will still have to pay for it in some ways, either cost of repair, replacement or deferred maintenance.
Construction & Installation: Ensure you secure a very good contract with well spelt out scope, performance requirements and payment milestones with adequate incentives and penalty clauses to motivate good performance. Contracts should include retention fee to be held all through the defect-free period.
Commissioning & Handover: Perhaps the most exciting stage of a project but if not carefully done, could scuttle all preceding inputs. Here ensure you conduct a joint final inspection with the contractors, design engineers, facility managers and other relevant parties to certify completion state and agree on snag list with specific close out dates before final demobilization of the building contractor from site.
Operation & Maintenance: This part speaks critically to the most important 80 percent of the total asset lifecycle. For developers or Real Estate promoters, this is when you need a professional and competent Facilities Manager. First, agree on an annual maintenance and operations budget. This helps ensure that the asset retains its value in spite of the economic conditions. Second, ensure that the Facility Manager develops a good Asset Reference Plan comprising of the asset register, maintenance plan and condition and maintenance history of the various components of the asset in return. This can help address the issues of deferred maintenance that may come to hunt the project in the course of its lifecycle.
