Commercial Real Estate Residential Real Estate Construction Essay

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The differences between the above are simple. Commercial real estate has to do with the sale and lease of property for, as the term implies, business purposes. On the other hand, residential real estate involves the sale and rental of land and houses to families for residential use.

The sale of residential property is heavily regulated. All states require real estate agents and brokers, who earn a commission from the owner of real estate for selling the property, to be licensed. To get a license, a person must have a high school diploma, be at least eighteen years old, and pass a written test on real estate principles and law.

Other assets/Economic Goods

Asset

An asset is considered to be,

'A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.'

Investopedia (2012) 

Other assets and economic goods, with respect to the construction industry are the following:

Shares

Indices

Forex (Foreign Exchange in Currencies)

Cash

Liquidity

'The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.'

Investopedia (2012) 

Analysing liquidity between Real Estate and Other Assets

The difference in liquidity between real estate and other assets is drastic. Cash is considered to be the most liquid asset out of all as it is the easiest way of procuring money. Shares, even though less liquid, can be turned into cash very quickly, thanks to the internet, where shares are sold and bought in seconds.

Real Estate, on the other hand, is more complex. First of all, one needs to find a buyer, who has to sign a particular contract in which a specific amount of cash is proposed. If said contract is accepted by the buyer, said amount of cash can be paid at once, or at a stipulated number of times.

b.

Give at least three reasons why a client makes an investment in real estate.

Introduction

There are various reasons why a land or property owner, which in this scenario is called a client, may opt to invest in real estate, rather than investing in other sectors. Three of said reasons will be discussed hereunder:

Predictable Income (rent)

Taking into consideration the local situation, there are a various number of properties that are uninhabited, and therefore, rent is a viable option to use. Instead of letting a property deteriorate, a client may opt to put his property for rent, at a stipulated price. However, the owner of the property must make sure that maintenance, taxes, insurance, and security satisfy the contract between both parties.

Other advantages that come with Predictable Income are, 'fairly predictable income (rent), some form of tax benefit (deprecation or the tax deduction of mortgage interest), and some stability.' as stated by MicKey, T. (2012).

Stability is achieved from a periodic income through rent, instead of just leaving the property empty. Moreover, renting a property helps reduce volatility and unforeseen risks, as investments that rely on a static income, tend to be less volatile than those that rely more on the capital value return.

Diversification

Throughout the years, it was seen that investment in real estate has been for diversification and the ability for real estate to maintain its purchasing power of capital.

As state by the National Council of Real Estate Investment Fiduciaries (NCREIF), the market indexes for said real estate industry have shown that there is a low correlation with the returns of stock and bond investments, meaning that real estate investments can undoubtedly increase portfolio diversification.

For additional possibilities of diversification, and risk mitigation potential, repetitive introduction of new real estate products and global opportunities are necessary. This provides makes it possible for investors to have greater flexibility so as to be able to customise their portion in the real estate asset allocation.

Hedging Inflation

Hedging Inflation Capacity occurs when real estate investment comes from the owner's ability to increase the rental rates of his property during the inflation periods. Unlike concerns that come from manufacturing and service providers, real estate owners do not have the put up with the demand elasticity, in order to increase prices. However, one must keep in mind that competition with rival properties in the marketplace is inevitable, which in turn might have to raise rates in inflationary periods.

An advantage of real estate is that it tends to maintain the purchasing power of capital, by passing a portion, if not all, of the inflationary pressure onto tenants.

Task 2/a

The reasons for the client to appoint a Project Manager, referring to at five Client's tasks.

The common responsibilities on the client's side are the following:

Defining the target specifications for the purpose and extent of the Project

Making and Securing decisions

Setting up Project Structure and Contract Documents

Ensuring financing and marketing milestones are met

Ensuring permit compatibility

Monitoring cost, quality and time.

If one unites the client tasks mentioned above, the term 'Project Management' may be used. A project manager is the entity that handles the Project Management, or client tasks, on behalf of the client or investor.

The project manager may also represent the client in management and supervisory aspect of a project, and also 'expert design of the construction undertaking', as stated by Sommer, H. (2010).

The project manager must take any required decisions, and periodically report on the Project's status. He/She must use their experience from past project to further help the success of said project.

To be able to handle all the tasks mentioned above, the project manager has to produce a team, 'Project Management Team', so that each task may be handled smoothly. Such tasks include

Monitor said schedule and cost targets, under the Project Manager's supervision

Offer support for the remaining tasks.

This means that load is taken off the project board, meaning that tasks that cannot be delegated are handles accordingly. On the other hand, tasks that can be delegated are handled by the project management, without hindering any allocated time of the Project Manager.

The project manager must be able to translate the complex design in simplistic terms, for the client. He must also be an honest advisor to said client.

b

The difference between line and staff functions (Project leadership and project monitoring) of project management, giving some examples concerning client's tasks.

Line Function

When taking into consideration Project Controlling and Monitoring, project management usually applies the line function, starting from the client towards the other participants of said project.

The initial step is for the client to assign the client functions. Note that this variety is put into action for large scale projects. Another reason for said action is for clients are not able to plan management capacities. In contrast to project control, the Project Manager is acting like a "Temporary CEO" (Sommer, H. (2010)), where he/she abides to the client's requests in managerial functions, having direct control on planners and executing entities. Basically, he/she influences

Proper project organisation

Execution of strategy and processes

, up to process optimisation and process simulation.

In the line function, project participants are in managerial function to the client.

Note that project management does have a direct control function, where target deviations are shown, and implementation of suitable measures is accounted for. This ensures that the milestones set are met.

Staff Function

In the case of a Staff Function, the client does not have the ability to take decisions, i.e. control said project. He has to report to his consultants. The responsibility of said client is to control the project, and report to the Project Manager. Documents worked out by project control have to be passed on and enforced by said employees of project management. In turn, this results in:

Staff expenditure

indirect control with restricted autonomy

c

The kind of skills a Project Manager should have, and explain why s/he should be a generalist within a client organisation.

A project manager has to have certain number of skills. A project manager has to be comfortable with the Project Types and his responsibilities. This also includes:

Process organisation

Target definition

Planning process

Construction implementation

A project manager has to be able to plan in a way that each process is hassle-free, and also be willing to give the best advice to the client, and also building a healthy communication with architect and specialist planners. 'Target Definition' must be clearly defined, so that each phase follows the other in a smooth manner.

One of the main skills of a project Manager is to be a generalist. When one compares the way an experienced professional and generalist act when asked to handle the project management, their methods vary. A skilled project manager involves the project participants at the early stages of the project, make use of their know how in their work and unite these qualities so that the right decisions are taken. The project manager must know the exact connection between the various process steps and have the know-how of the planners and executing companies and develop a solid knowledge management foundation from this. A generalist project manager has a knowhow of not only his part of work, but also of the other sectors, so that he can further understand the other planner's way of thinking about a certain situation.

Ongoing face to face interaction with both the client and architect are necessary for the Project Manager. A specialist on the other hand, will actively manage the Definition process, and the devise his personal milestone plan, take rough cost estimates, and as Sommer, H. (2010) states, 'initiate and accompany processes for the improvement of economical and quality considerations.'

Task 3

List and explain the difference between transferable and non-transferable client's tasks.

Delegation of tasks, also known and transfer of tasks is when an entity, like a client, acts on one's behalf. This occurs when the client transfers some of his/her powers to another person. Delegation of tasks means that said tasks can be divided and tackled with appropriately, decreasing the chance of errors. One of the reasons why a client has to delegate or not delegate his tasks, is to optimise the functions that make up the Magic Triangle.

http://www.apm.org.uk/sites/default/files/Time%2C%20cost%2C%20quality%20model.jpg

Processes that can be transferred and not transferred

Delegation is required for a smooth running project. Tasks should be evaluated, and divided in those that are delegatebale and those that are not.

Transferable tasks

Tasks that require a professional, so that the chances of error and loss in time are minimized.

Tasks can also be delegated with respect to the technical ability.

Further Examples

As previously mentioned, project monitoring may be taken care of by the client when it comes to small scaled project. However, in case of large scale projects, a client may decide to opt for a project manager, so that tasks are divided amongst the Project Management Team, with respect to their area of expertise. A project manager has the role of optimising the cost and time for a particular project, whilst keeping quality at its peak.

Choice of materials used on a particular project, may be an interchangeable task. In the case of a client, who has a broad understanding of the project in question, he/she may decide to choose the materials used on site. On the other hand, a client who is not knowledgeable on said project, may hire qualified personnel to take care of said task. Said choice of materials greatly affects the quality of a project. Materials of lesser quality will in turn produce an overall product that is not up to the required Quality Standards

Another example worth pointing out is in the case of issues that need immediate assistance. Certain decisions may fall on the project manager, rather than the Client, who is not experienced with respect to his/her project.

Non-transferable tasks

Project managers and/or client should not delegate

The signing of the Project Contract has to be done specifically by the client. The client is the one who has to come up with the desired end result of his/her project, and therefore he has to be the one accepting it, by signing.

Warranty, as well, is a non-transferrable task. It is fixed and predetermined throughout the project life cycle. The project manager must make sure that the product's specifications meet the Client's requirements, and are future proof, in case of anomalies.

Note that, the choice of said tasks being transferrable and non-transferrable is also dependent on the kind of client being dealt with. A client, like for example, a shareholder, has different views when it comes to time, cost, and quality. Usually, the priorities fall on Time and Cost, whilst neglecting quality. On the other hand, the user will focus more on quality and cost, and finding a healthy balance between the two.

Task 4

Explain and compare the goals and the differences between the three (3) management services namely, Project Management, Project Development and Facility Management.

Definition of Project Management

Project management, is when one uses his/her knowledge and expertise to manage projects as efficiently and effectively as possible. As stated on Investopedia, 'Project management typically involves a one-time project rather than an on-going activity', and resources are divided in human, and financial capital.

Definition of Project Development

C. J. Diederichs defines Project Development as combining factors like,

Idea

Location

capital

In order to create real estate projects that is competitive, creative and secure, whilst also being sustainable.

Definition of Facility Management

Facility management entails all services that are required for the management of buildings and real estate, so as to maintain and increase their value. It is also a method of providing a maintenance support, project Management, and User Management, throughout the life cycle of a particular building.

Note that the processes mentioned above, are part of the Life Cycle of project till the Utilisation Phases.

Goals and Differences

First of all, one must realise that a goal in a particular service affects other goals situated in other services. Therefore, a systematic approach must be chosen so that a smooth running project is put into action.

Quality

Quality is a factor that affects every service in a construction project. Quality is sought after by the user of said construction project. Quality affects every aspect of a building, beginning from conception phase, design phase and so on. Basically, every material used for a project will in turn affect the end quality, and lifespan of a building. However, it is often sacrificed, so that a deadline may be met on time. Even if a particular project requires revisions, these should not affect the end result of a project.

Time

Another factor, which may be considered by the client to be the most important, apart from budget, is time. Time is money, the later the deadline, the more money a client has to pay, and the less return is made. As previously mentioned, a goal affects the following goal, irrelevant of which service said goal is from. One mistake in reaching said goal will not only affect one service, but the successive goal, and in turn, service. Ample of time should be given between one process and the other, in case problems arise. Note that problems need to be converted to issues that can be dealt with, as quickly as possible.

Budget

One must keep track of all the expenses for a particular project, and report to the client. Irrelevant of which service, official receipts and expenditure records must be saved, and a compared to the budget that the client has given.

Each service has a particular budget accounted for, like for example, services have a stipulated budgets, as well as budgets for analysis and studies with respect to feasibility, and in general, the total cost of materials used on site. Transparency is key with respect to budget. A client must know where his money is going.

The main differences between each Management Service, is the phases they take part in. Project Development takes part in the Project Conception Phase, whilst Project Management is in charge of the Planning and Realisation Phase of said project. On the other hand, Facility Management is in charge of the Commissioning and Utilisation Phase of said project.

Note that all studies, like Feasibility Studies, and analysis occur in the Project Development Phase only. The aim of Feasibility studies is to analyse all the possible outcomes associated with said project, and to determine if said investment of time and other resources, will procure the desirable result. Note that even though said study is only preliminary, some people may opt to have a highly detailed representation. The Facility Management, is the only service where the building services are taking care of during the Commissioning and Utilisation Phase.

Note that each service affects the costs on a particular project differently, as shown below

Task 5

You, as the instructed project manager for an office building, must analyse the architect's design concerning economical aspects.

Explain and list the major aspects/characteristics, to optimize the investment costs and subsequent (follow-up) costs within the design under constant consideration of the intended purpose. Also explain the basic interrelation between investment and subsequent costs.

Introduction

One must realize that one of the main tasks of Project Management, is to reduce as much as possible, the total investment and subsequent costs. Planning of a particular project must have these two aspects in mind, and said aspects must be kept into constant monitoring throughout said project.

Initially, the volume of an erected construction project is what influences the total investment of a particular project. Taking into consideration for example, different building measurements which led to distinct ground plan types for organization forms in office building construction. If the gross floor area is identical, the amount of façade areas that need to be produced are different, and therefore a noticeable fluctuation in the total amount of expenses, as shown below occurs:

Using as an example, a cell office having a comb structure, almost double the facade area is required, when compared to an open plan structure. However, combination offices require only an insignificant amount more facade area than an open plan structure, if intelligent ground plan design is present.

Said arrangement, not only leads to a reduction in circulation areas, but also to an improvement in Profitability of corporate space. Therefore, for each square meter of useful space (US), a decrease in gross floor area (GFA) required to be used occurs, when compared to less skillful planning. The end result is gross area that is saved up, which in turn leads to a considerable reduction of the overall investment costs.

Another method of saving on investment costs is to create a compact construction style. However, as Sommer, H. (2010), 'architectural interests must not be left out'.

The choice of structure and material chose will also improve efficiency, as shown below:

Floor Ceilings, Shell

The chosen building grid affects the required supporting distances and openings, which are decisive factors.

Facades

Note that the cost of facades is affect by:

architectural demand

choice of materials

building physics requirements

protection against solar radiation

Knowledge of the facade planner regarding detailed planning.

Note that elemental metal facades are more expensive than perforated facades with plastic windows.

Roof

One must realize that it is close to impossible to find a way to save up on roofs, if they have been carefully designed to meet desired specs.

Development

Floor, wall and ceiling areas are affected by:

building acoustics

sound engineering requirements

qualitative demands

architectural demands

Another cost factor is the complete electrical, plumbing systems and HVAC.

Another effective method of improving economical aspects is continually analysing the room arrangement for said project and ask the following questions:

Are the proposed room requirements indispensable?

Do all employees need a private working area?

Are said square meters required and sufficient for said specific working area?

Does the number of Conference Rooms exceed the required amount?

One may use documents like the Neufert Document to obtain the required data for the questions mentioned above.

As a rule, the required useful space can be reduced considerably for the same number of working areas.

Subsequent Costs

Subsequent costs may be divided in the following aspects:

Services and maintenance Costs

Cleaning Costs

Energy Costs

Service and maintenance costs

Maintenance costs are drastically influenced by the method of planning and implementation of said planning. Nowadays, emphasis is put on long-term quality, instead of the cheapest possible services. This results in lower maintenance costs in the future.

Conflict usually arises between parties, like the investor, project Developer and General Contractor, who prefer the cheapest possible services rather than the long-term quality services.

The aim of the investor is to acquire maintenance costs from the rent, and therefore quality is required. However, s/he would like to pay the least possible amount, meaning products and details which are as cheap as possible for the creator.

The task befits the project manager as a person representing the interests of the investor, in this place, to guarantee a quality as high as possible at economically acceptable costs.

Cleaning costs

If cleaning is implemented in a project's plan as early as possible, 20 to 40 per cent could be saved by clients. Taking into consideration facades that can neither be accessed by cleaning baskets, nor through cherry pickers. A professional climber needs to clean the facade under hard conditions and strenuous positions which, according to Sommer, H. (2010), take around 20 times longer when compared to moveable platforms.

Other factors include:

Easily cleanable material and surfaces

Easy access to areas

Necessary technical equipment

sufficient power connections

This is how one cuts down on cleaning costs. The factors mentioned above mainly improve efficiency, i.e. less time is required to finish a task, saving up on the annual costs. Unfortunately, said process is highly underrated when it comes to cutting down costs, and attention is given to other process.

Energy costs - Green Building:

To achieve the lowest possible energy costs throughout the lifecycle of a project, project management must identify the energy system requirements as early in the project as possible.

One must decide what methods of alternative energy at an early stage, to see if it is possible to use said method or not. Taking for example geothermal energy, said method only works with low temperature heating.

Note that the required energy demand should be reduced to its minimum in residential construction, even down to zero (zero-energy buildings). One must use documents like Energy Savings Ordinance (EnEV) to obtain said low energy demands. Implementing said document specifications will in turn compensate to the increased capital charges, through saved energy costs. Reductions in heat and cooling energy requirements, through structural measures may be achieved thanks to the building envelope, and their storage ability.

The building envelope is made of three parts:

Roof

Cellar ceiling

Facade (windows, walls, doors etc.)

The facade, which takes most of the planning part, has the biggest contact with the outside environment, which in turn affects energy costs the most.

Weak points mostly occur through windows, doors facing the outside, and ceiling connections, which are considered to be heat bridges. Insulation material may be used in conjunction to walls, to decrease heat losses. Double glazed windows or even triple glazing windows are also ways of decreasing said losses. Moreover, heat insulation of cellar ceiling and roof is easy to manage, as long as detailed plans are put into action.

Before choosing the best option, different alternatives must be tested, and their respective total energy requirement and corresponding primary energy requirement must be determined. Then, the respective investment and energy costs are determined and compared, with respect to the different energy requirements of said variants. Here, we see an interrelation between investment and subsequent costs.

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