Real Estate Law: Course Structure & Assessment

Course Overview

• The course structure is a 12-week schedule.
• Weeks 1-4 cover the fundamentals of residential tenancies and commercial leases.
• Weeks 5-12 are dedicated to special topics, such as corporate real estate, sustainability, and disasters.

Assessment Overview

• Engagement A (Quizzes) is worth 4.4% and consists of 11 quizzes (0.4% each).
• Engagement B (Pre-test submission & Peer Feedback) accounts for 6% and involves an individual practice test.
• Engagement C (Student lecture notes) is a team task worth 2%.
• Engagement D (Case Study presentation) is a team task accounting for 12.6%.
• The Week 5 Test is worth 20% and includes closed book, business writing responses.
• The Assignment is worth 15% and is released before semester break.
• The Final Exam is worth 40% and is a closed book, written format.

Late Submission Policy

• Engagement tasks have a strict 0% penalty for late submissions.
• Extensions for major assessments are only granted with documented medical/personal reasons.

Property as an Asset

• Property differs from other investment assets due to its physical, financial, and market-driven characteristics.
• These characteristics influence its management and investment potential.

Heterogeneous Nature of Property

• Unlike homogeneous shares, properties are all unique.
• Even within an apartment complex, units can vary in size, view, condition, layout, or level.

Lecture Example:

• Two identical houses in the same suburb can have drastically different prices depending on location, amenities, school zones, or street orientation.

Management Implication:

• Property managers must avoid a one-size-fits-all approach and consider each property's unique aspects.

Property as a Physical Asset

• Properties require ongoing upkeep due to their physical existence.
• Obsolescence can occur if a property's design, functionality, or infrastructure becomes outdated.

Lecture Example:

• Compares a new office building in Albany to a 1980s office in Auckland CBD with old wiring and outdated layouts, making the latter less desirable for tenants.

Management Implication:

• Properties need periodic upgrades to stay competitive.

Large Value of Properties

• Properties involve large financial commitments, making them difficult to quickly buy or sell.

Lecture Example:

• The median house price in NZ is around $750,000 meaning most buyers need a mortgage.
• Large commercial properties, such as Sylvia Park mall, can be worth over $1 billion.

Management Implication:

• Investors and managers must carefully plan purchases, leasing strategies, and market positioning.

Leverage

• Most property purchases involve debt financing.

Lecture Example:

• Banks often provide short-term commercial loans requiring owners to regularly refinance and prove financial stability.
• Banks monitor property conditions to ensure investors maintain their assets.

Inelastic Supply

• Supply cannot quickly increase when demand rises.

Lecture Example:

• COVID-19 caused historically low interest rates and lack of construction meant prices rocketed as supply could not keep up
• Developers take years to plan new homes, resulting in common market fluctuations.

Management Implication:

• Property owners benefit from limited supply, but developers must anticipate market changes.

Illiquidity

• Selling property takes time, unlike instantly selling shares.

Lecture Example:

• It can take 6 months to sell a house in a slow market.
• This involves steps like finding an agent, advertising, staging, inspections, negotiating, and legal transactions.
• Commercial real estate takes longer, especially with tenants.

Management Implication:

• Investors need to plan and strategically sell properties for continued value.

Lease Distortions

• Commercial properties lease agreements impact property value.

Lecture Example:

• A poorly structured long-term lease can lock landlords into bad rental rates, reducing flexibility.
• Guiness Brewery signed 9000 year lease on a Dublin property locking landlord into old lease terms

Management Implication:

• Lease agreements must be carefully structured to allow flexibility for market changes, rent increases and tenant quality.

Property Investment Strategies

• Investment strategies differ based on risk tolerance, financial goals, and market conditions.
• Three key strategies are core, value-add, and development investment.

Core Investment Strategy

• Core investment strategy involves stable, low-risk investments generating steady rental income.
• Core investments includes fully leased properties in prime locations with long-term tenants.
• Core Investment prioritize cash flow rather than high capital growth.

Lecture Example:

• Institutional investors (large funds, pension funds, REITs) prefer core investments for security and reliability.
• A-grade office buildings in Auckland's CBD with high-quality tenants are examples of core investments.

Pros:

• Stable, long-term leases provide consistent cash flow.
• Prime locations and high-quality tenants reduce financial uncertainty, lowering risk.

Cons:

• Lower return potential due to already optimized properties.
• Higher entry costs due to prime properties, making them more expensive to acquire.

Management Implication:

• Property managers focus on lease renewals, tenant satisfaction, and minor upgrades to maintain long-term occupancy.

Value-Add Investment Strategy

• Involves properties with potential for improvement through renovations, better tenant management, or repositioning in the market.
• Seeks to increase rental income and property value by taking moderate risks.

Lecture Example:

• Older office buidings need refurbishment to attract higher-paying tenants.
• Mid-tier office building in Wellington renovates outdated design , adding no air coniditoning improving tenant quality, modernizing facilities to get higher rents

Pros:

• Higher returns than core strategy due to forced appreciation through upgrades.
• Facilitates adapting to changing market demands.

Cons:

• Moderate risk if renovations don’t increase property value
• Requires active involvement by owners to oversee upgrades and leasing strategies.

Management Implication:

• Property managers coordinate renovations, negotiate new leases, and reposition the property.

Investment Strategy

• Ground up high risk, high potential returns.

Lecture Example:

• Raw land and building with residential properties
• Develop urban areas like (Albany, Silverdale and Westgate)

Key Risks in Development:

Regulatory, Market Fluctuations, and Unexpected Costs reduction

Pros:

• Highest potential return for sucessful project

Cons:

• Very high risks, can lead to market losses.
• Long timeline, may take years to get an immedate return.

Management Implication

• Closely monitor construction leasing in the market.

Diversification in Property Investment

• Protect against downturns through spreading risk across property types.
• Property sectors, geographical locations and tenant mix.

Lecture Example

• Investor in Auckland reduced their risk with residential rental apartments remained stable and are a major balancing risk.

Role of the Property Manager

• Ensuring properties are well maintained through legal compliance, tenant relations and strategic long term management.

Definition and Scope of Property Management

• Any person instructed to manage an interest in property on behalf of the owner.

Types of Property Management Roles

• Main involvement in leasing as a property manager
• Responsible for maintenance and sustainability as a facilities manager
• Portfolio growth within financials and disposals as an asset manager

What Property Management Entails

• Team specializations include leasing, facilities, planning, acquisition and disposals.

RICS Professional Standards and Guidence

• Leader globally to create standards to evaluate property
• Must be aware of and compliy with the RICS
• Professional ethics and international standards and ethics
• Following these standars may provide a partial defense

Definitions

• Person company manages property as a client or agent
• Landloards are the owner. Tenants recieiving a lease.

Introduction and Ethical Principles

• RICS sets out standard practices for professionalism
• Ethical standards support residential and commercial management

Members Mandates

• Be clear, truthful, non-biased, dont discriminate and ensure inspections and meeting are safely involved.

Manager Duties

• Skills, Care, diligence, and ethical practices for efficient use.

Section 2: Engagement Instructions

• Understand money laundering regulations and restrictions involved
• Disclose fees

Section 3: Agreements

• Agreements require honesty and compliance

• Rent security and clarity in lease of terms

• Ensure open market value reviews. Make sure proper notices are provided.

Setion 4: Maintaing Proper Records

• Ensure no tenant or landlord personal information to not be shared
• Ensure efficient communication on maintenance and staff training

Portfolio and Asset Management

• Monitor performance

• Ensure to have security and maintenance for income
• Ensure a good healthy portfolio is always running.