Financing corporate real estate: A raw materials procurement approach

Current CRE financial management practices predominantly reflect a view of real estate as an investment vehicle. The author argues that for the CRE manager, real estate is not an investment vehicle, but rather a raw material in his firm’s production process. Under the raw materials procurement approach, the CRE manager’s goal is to optimise reliability, flexibility and cost across the CRE portfolio. Optimisation is attained by pursuing a financing strategy of asset/liability matching; the CRE manager should attempt to match the duration of his real estate financial commitments to the real estate’s expected productive life as a raw material. The author outlines a methodology for implementation built around two key manageable variables: commitment and control.