January 19, 2021

A spreadsheet is not enough when owning, developing and managing a property

Together with Colliers CEO Peter Winther and Rasmus Juul-Nyholm, CEO of Cobblestone, Kristian Krogh on Thursday formed the panel in Estate Media’s discussion about the Danish real estate market in 2021. And Thylanders CEO and Managing Partner had a little warning to some of the new investors in the market.

Kristian Krogh said, that while most people can figure out how to calculate a price and some also may be willing to pay (too high) a price, to get their money invested in real estate, the real challenge is the operational part of real estate investments. When the purchased assets need to be managed, maintained and developed. And if you as a real estate investor is not experienced or comfortable with that particular part of your business, you risk burning your fingers.

Here is an excerpt of Kristian Krogh’s main points from Thursday’s discussion:

“I always get a little uneasy when everyone agrees on what is going to happen. There will be more money in the Danish market, property investment is fantastic, logistics properties are fantastic, etc. And that is exactly where you just have to reflect once and acknowledge that there are also some things that we often do not calculate with.

We have to think about the real estate market, like we talk about the High Street and Wall Street in the stock market. The real economy versus the financial economy. In our world, the real economy translates into tenants and users. In the end, revenue comes from properties because there are people who are willing to pay rent or buy properties.

I think in particular in 2020 we have almost forgotten to talk about the effect on the tenant/user side. It is nevertheless very impressive that, despite lockdowns and restrictions during the Covid-19 pandemic, we haven’t seen any real effect on values. Of course, there are huge amounts of money pouring in over the Danish market. Money is coming to Denmark and there are even more out there looking for assets in which they can get some returns – partly because the majority of the world’s bonds have extremely low interest rates, some of them even negative interest rates.

And when you are an investment manager and you have been given the task of investing 100 billion more in real estate, today there is no alternative. So you fail 100% in your task if you do not get the money invested in real estate. And then you would actually rather just fail 50% by buying something at too high a price and then accept the problems with operation and rental in the years to come.

So we’ll probably continue to see a huge influx of money. But you also have to keep in mind that the financial part, that’s the easy part. And as more money are invested at a higher risk – reality is bound to hit you one day. Because there are people who have to physically do something. When it comes to operations, nothing or very little is being executed by the computer or behind the spreadsheet. That, after all, is the hassle of real estate. That there is actually something to be done out there in the real world. Out on the street. Scaffolding up, renovation and remodeling, tenants in and out, problems and discussions.

If you only look at things from a financial point of view, it’s easy to deal with properties in your spreadsheet. But when reality hits, it probably dawns on someone in your organization, that you have miscalculated your investment because you underestimated the operational part,” says Kristian Krogh.

At Thylander, we have focused on Danish property investments since 1986. We know the market. We have been around in good times, as now, and in bad times, as in the wake of the financial crisis. We know what it takes to be successful with your investment – both financially and operational. It can be tempting to get on the train, almost regardless of the price of the ticket, because the train is running really fast right now. But you still have to think – and also think long-term, sustainably and with timely care.