Video: Real-estate risk
What have Pete the pirate and real estate risk manager in common?
Information condensed into structured data is the basis for all areas of risk management. In sub-areas - especially in new risk types - the information required for a meaningful valuation is not available in structured form and in some cases not even in electronic form. An integrated and portfolio-oriented valuation and comprehensive risk management for real estate portfolios are part of such a use case. The valuation of real estate is based on master and transaction data. Master data are, e.g. ,rental space, macro and micro location, number of floors or parking spaces.
Most common transaction data are the rental price per square meter and information about the current tenants of the property. The collection of this information is currently a laborious manual process that must be repeated annually. Often, relevant information is already available in the form of appraisals (possibly electronic documents).
Real estate appraisals do not have a predefined structure. Instead, they depend on the individual appraiser. However, the information relevant for the valuation is the same in all appraisals. Automating the recording process is therefore an important building block for real estate risk management.
ifb has developed a four-stage approach for risk-adequate measurement of real estate exposure.
Phase 1 (portfolio view) serves to combine key figures on a portfolio basis. The advantages are the creation of transparency and an initial identification of concentration in the portfolio.
Phase 2 (value drivers) enables an extended value driver analysis. In this process, important value drivers are identified. With the completion of this phase, a clearer view of the interdependencies develops.
Phase 3 (scenario analyses) analyzes the effects on other key figures of bank management.
The fourth and final phase (model development) is aimed at quantitatively oriented institutions: A model is developed for calculating credit risk, taking into account correlation assumptions between LGD and PD or other modeling assumptions.
Knowledge and (unstructured) information on the individual properties are typically available in the credit risk management departments, but there is generally no consolidation of the various properties into a value-driver-oriented portfolio view.
Especially the influences of the global measures in the course of the Covid 19 pandemic show that individual user groups (residential, gastronomy, hotel, retail) systematically influence the real estate risk exposure in different locations.
The Real Estate - Document Desktop (RE-DD) is the starting point and the platform that accompanies you in the steps towards a comprehensive automation of the collection of relevant information from the real estate appraisals. A solid data basis is a prerequisite for all analyses and forecasts. Especially in times after COVID-19, control and management of emerging and possibly evolving risks and opportunities are indispensable.
What impact does digitalization have on financial and risk management?
A future-oriented insight and outlook for professionals and experts. Read more about real estate risk management on pages 177-192.
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