1. Valuation and DevelopmentBusiness Professor Mikhail Soloviev Co-authorRichard Grover State University - Higher School of Economics & Oxford Brookes University

2. Valuation & Development Business(PLAN) • Valuation & Development Business in Market Economy & Management of Organization … 03-63 • Legal Environment of the Valuation & Development activities… 64-106 3. Valuation in Real Estate Business ... 107-167 4. Development: risk analysis, valuation and regulations. …168-187 • Business Game “Auction: City Site for Development Project” …188-214 6. Presentation of Independent works.

3. Valuation & Development Business 1. Valuation & Development in the Market Economies & Management of Organizations

4. Plan I. Valuation & Development: preliminary definitions. II. Valuation & Development in Market Economies: • Real Estate signs in Globalization & Welfare. • Economy and RE waves and volatilities. • Crisis: Real Estate drops of the 2008-2009. • Crisis and Development. III. Valuation & Development in Management of Organizations: • Valuation & Development: roles in the strategic and operative management of organizations. • Potential of the Real Estate Development. • Investment & Development Projects. • Valuation in the projects’ management.

5. Preliminary definitions and remarks • Development is activity for purposeful and qualitative alters of RE (real estate) objects: structure, characteristics, kind of using. • Valuation is activity for cost estimating the business, commercial & residential RE, etc. ============================================================================================================================================= * Both terms: the valuation & development have more wide (besides the real estate) using, e.g. for mobile and intellectual property valuation, alters of organizations, technologies, etc.

6. The Development Business defines opportunities and ways for the real estate resources’ purposeful changes in concern with the general strategies and main targets of organizations both for: • the so named “Non-Property” Companies (with any profile business besides real estate) and • the Companies with the real estate business as a main source of income.

7. The Valuation provides the real estate business-processes and proprietors by cost value analytical data in concern with: • the real estate development plans & results, • appraisal of the development and investment projects efficiency and risks; • real estate objects’ capitalization (market value) for current and future market conditions, • taxation payments, conditions of insurance contracts, credit guarantees, and etc.

8. The valuation profession belongs to the labor market (services segment) closely connected with the main real estate markets activities (renting, investments and development). • Developers are complex professionals and connected with “neighbor” markets: building, facility & project management, town planning. • So the valuators and developers are among the very actual and perspective professions for future business carrier.

9. Why do we accent onto the Real Estate Valuation & Development • Valuation and Development Business are in a base of the Real Estate markets & activities. • Real Estate is one of the Infrastructural Basis of Economy, its “Fifth” resource. • Conditions (dynamics and trends) of the Real Estate markets reflect general conditions of economies and welfare of society, national and family richness.

10. Valuation & Real Estate Development in contemporary market economies • Real Estate signs in Globalization & Welfare. • Economy and RE waves and volatilities. • Crisis: Real Estate drops during the 2008-2009. • Crisis and Development

11. GLOBALIZATION PROCESSES 1 FREE FLOWS of FINANCES, INVESTMENTS, LABORS, MIGRATION, and Real Estate activities

12. Real Estate– space resource, place for work & life, space for production, social and business activities, shopping and rest.

13. Economy conditions and the Real Estate markets & activities (samples) • One of the remarkable signs of the economy health is a commercial real estate (and in partially office) occupancy. • High level of the occupancy stimulates the real estate active development. • Stable economy is in correspondence with low risks, higher capitalized value of the commercial real estate, etc.

14. Pre-Crisis (before 2008) welfare: reflection on the world and national Real Estate markets • High level of the commercial real estate (offices, etc.) occupancy. • Decreasing the yield (risk) dynamics. • Investment growth (incl. investment into the real estate development projects). • Real Estate (commercial and residential RE) average cost increasing.

15. Moscow Office Market CharacteristicsAverage Vacancies, % “A” “B”

16. Pre-crisis WORLD Statistics 2008/2007: Growth! OFFICE markets Rank COUNTRY City $ / workstation €/ workstation

17. Pre-crisis growth of the Moscow Commercial Real Estate market: Investments & Yield (world) % Data of CB RE Noble Gibbons

18. Pre-crisis Average Cost Increasing: Moscow Residential (elite): [$/m²]

19. Economy and Real Estate waves and volatilities 2 In general the Real Estate market dynamics and trends are connected and correlated with the general economy dynamics and trends both for the World / European and national (Russian) economical and real estate markets characteristics.

20. World Economy start of the Crisis 2008/2009 Brent (Oil) Index Dow Jones 10400 ~77 II quarter III IV I I II

21. World Real Estate market waves Wave 4 1994 – 2001 2001-2004 Wave 5 2004 – 2008 2008 - …

22. European Real Estate Market – Rent Index Long Dynamics % +30% 0 2009 1993

23. World crisis reflection to RF economy & real estate market is stronger. Why? • A whole the Russia is a part of the world economical, social and financial environment. • Less diversification of RF economy a whole. • Mining predominance and dependence on minerals market prices dynamics. • More volatility of rent/yield dynamics of the RF real estate markets – more risks: - stronger growth during positive periods, - stronger decreasing during recession periods.

24. INVESTMENTS EUROPE Prosperity of the 2007-2008 Investment Prospects & City Risk-Free Moscow: both extreme ranks CITIES RISK-FREE

25. Russia: Industrial Branches Indexes 2006-2009 (trends and volatility)

26. Moscow offices vacancies [%]Data of Colliers International ~17% 1- 4% II-2009 IV-2000

27. Moscow shop bargain costs[$/m²] Different types of shops Average cost

28. Moscow store market: vacancies and yield

29. Dynamic of the Russian Stock Exchange & Residential Market (waiting / fact) Значение индекса РТС 01.01.02-28.11.08 Last period

30. Residential Housing (in Kiev, Ukraine) [1000 m²/year] Prognosis Similar Real Estate crisis processes – in other transiting economies

31. Crisis: Real Estate drops of the period 2008 (IV)–2009(II) 3 • Sharp influence of the world financial crisis start period during the 4th quarter of the 2008 and the 1st half-year of the 2009 in the World and Russia • Deep decreasing the minerals prices during the period and economy recession • Drops of characteristics for all the segments of the Real Estate Markets

32. Functional structure: Offices Shops Industrial (class distribution) Data: Rent Yield Vacancies Supply / demands Development projects Incomplete objects Typical world structure ofCommercial RE markets data for statistic and dynamic analysis

33. Office rent: 2008-2009 [$/m²/year] Quarters Class “A” Class “B” Class “C”

34. Offices Supply and Vacancies [mln m²] [%]

35. Shop rent: 2008-2009 [$/m²/year] Shopping Centers Quarters Different types of shops Average rent value

36. Vacancies of shop premises [%]: Less sharp decreasing dynamics 2 quart. 3 quart. 4 quart. 1 quart. 2 quart.

37. Industrial (Store) rent: [$/m²/year] - 30-40%

38. Store market Planned & fact building: m² Supply: mln m² & Vacancies %

39. Similar Real Estate crisis processes – in other transiting economies Shop Rent (Ukraine, Kiev) [$/m²/month] Twice decreasing in 50 days

40. Crisis and RE Development 4 • Decreasing the building activities. • Vacancies growth - decreasing the “prime” commercial real estate demands. • Decreasing the payable demands in the residential real estate markets • Stopping development projects (especially on the starting steps) • Incomplete real estate building growth

41. Office building process - decreasing dynamics a whole x1000 m² “B” “A”

42. Planned & Fact offices delivery [m²] Prognosis

43. Incomplete Building Incomplete real estate objects building quantity growth – visible symbols of the general economy and real estate market crisis

44. Image of the incomplete building – stopped process

46. Planned Dates of Start – II quart. 2007 the building process: Finish – IV quart. 2009

47. Normal building tempo: 3-4 frame storey / month Half year stopping on the 8th (of Σ19) level. After the building process revival its finish will be much more later than the planned IV q.-2009.

48. Valuation & Development in Management of Organizations • Valuation & Development: roles in the strategic and operative management of organizations. • Potential of the Real Estate Development. • Investment & Development projects. • Valuation in the Investment & Development projects management.

49. Valuation & Development: roles in the strategic & operative management of organizations • Two kinds of companies 1) Non-property companies 2) Companies with RE as main source of income • Valuation of the RE objects • Accounting for Tax payments, Insurance (1,2) • Bargains/Sails, Renting (1), • Sails/Bargains, Letting (2), etc. • Real Estate Development • Investment projects (1), • Development projects (2)

50. 1) Real Estate as one of providing resources of organization Management System of Organization HUMAN, FINANCE, INFORMATION, REAL ESTATE - space resource, other RESOURCES GOODS, SERVICES Materials, components, etc. CONSUMERS SUPPLIERS ENVIRONMENT