Academic journal article Journal of Financial Management & Analysis

Role of Financial Services and Real Estate Management - towards a New Value Chain : Exploratory Research Findings

Academic journal article Journal of Financial Management & Analysis

Role of Financial Services and Real Estate Management - towards a New Value Chain : Exploratory Research Findings

Article excerpt

Introduction

Difficulties in the Real Estate world depend largely on the articulated economic situation that has affected Italy, Europe and all over the western world. The international financial system, grown tremendously over the last 15-18 years, has shown that this growth without an appropriate system of infrastructure, rules and controls, could lead to profound weaknesses (Nomisma1). The turbulence that has hit the financial markets has come at the height of an excessive expansion of credit and finance, which for several years, had contributed to the development of the global economy (Cacciamani2; Ciaramella & Tronconi3).

The crisis in the financial subprime products, linked to the U.S. Real Estate market, has brought to the attention of market operators the need to define a proper way of financing investments, so much that Real Estate is going through a significant transformation that is radically changing the characteristics, structure and relationships with other economic sectors. Nevertheless, Europe's Real Estate Industry is confident that 2015 and thereafter will be good years (PWC4). Since the late nineties, one of the main features of Real Estate has been the gradual intensification of the relationship with finance, because of the changes caused by the progressive development of Real Estate financial transactions. This growth has led, on the one hand, to more and more attention to the problems associated with the investment property and, to the orientation towards management addressed to the preservation of the asset value and to the profitability of the same. (Cafferata et. al.,5).

The process of "financialization" of the Real Estate has therefore prompted the application, at Real Estate Management level, of an economical and financial logic, which is focusing on their ability of generating income. However, the most significant result of this process is probably that the assets are not considered as "immutable"; which implies the need to have adequate numbers of specialized structures which can give quality services on a large scale and at competitive costs. In this sense, the willingness to outsource more and more pronounced services to specialized companies is not a direct consequence of the desire to save on costs, but it is indicative of the commitment to protect the value of Real Estate assets, thus preserving over time, to increase the service quality and efficiency.

Prelude

In addition, it is necessary to offer funding incentives by using Real Estate Funds and REITs for property possession and management available under European law. In particular, the role played by Real Estate Funds is crucial: many investors chose this channel of investment rather than direct investment and, furthermore, it is the only one valid for private investors of limited opportunity. For example, in the specific case of Italian Retail Real Estate, Real Estate Funds represent at least three quarters of the total investment, with a prevalence of international investors who are able to attract a flow of capital and resources essential to boost the economic cycle. In this sense, the high level of environmental complexity, along with the crisis that has imprinted and continues to mark the Real Estate Industry, require a general rethinking of management issues. Moreover a business model adjustment is needed to manage and to maintain the competitive advantage over time. Nowadays, the property (real estate) must be considered as a complex asset where everything is integrated and in which the financial management aspect becomes crucial for creating and sustaining new competitive advantages over time and not simply as a symbolic sign in a specific area.

The research objective of this study is to: conceptualize a model directed to the value creation that highlights the role of financial services and the growing importance assumed by the integrated services in the process of evolution of the Real Estate's value chain and follows an exploratory and systematic research methodology. …

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