In real estate terms

What makes a property development commercially viable is its capacity to attract investment, Firstbridge’s Sarah Muscat discusses the various aspects of property related investments with The Times of Malta

What contribution does the property and construction sector give to the local economy?

Properties impact the general environment at several levels: they influence the city and region, the estate and neighbourhood, and the individual building itself. To a financial analyst, the real estate environment is more than this.

Holistically the property and construction sector is a key indicator of the current state of the economy, the nature and context of real estate development also signifies the position of the industry. Properties are structures that create economic capacity for the community. The full measure of this economic impact includes the entire investment associated with each phase of the development process together with other contributions including employment generated from the project before and after completion. The extensive range of on-site construction services are supported by a wide range of professional and business activities, including: architecture & engineering services; legal, advisory & financial support; marketing & management services; construction, site engineering, landscaping services and interior design.

The combination of investment on pre-construction, construction and post-construction activities required to deliver properties ready for use represents the development industry’s direct contribution to the local economy. Job growth and income generated, supported by annual building operations and maintenance represents a continuing flow of expenditures into economies that extend over the life of the structures.

You combine your architectural profession with business knowhow – what advantages does this give you?

Through my professional experience within architecture and financial advisory, I firmly believe that in the contemporary global economy; architecture, landscaping, urban planning and design must confront the complex mechanisms of finance and economics. There is little use and limited hope for the long term viability for an aesthetically beautiful commercial building if it does not make financial sense. Real estate must engage both design and investment as integrally connected. We should concentrate on design within the crucible of finance, examining the ways each can add value to the other. One should emphasise the importance of design in real estate development, exploring how form can have an impact on investment and value. Through experience on property related engagements, I have managed to combine analytical skills in investment and finance with an understanding of those forces that affect values in real estate development and investment in the urban context.

What are the main elements that make a development commercially viable?

One of the most critical aspects that make a development commercially viable is its capability of attracting investment. The repayment of the preliminary capital and expected returns associated with the initial investment for a development occurs over a period of time – therefore, an investor needs to pay special attention to the long term sustainability of the project. For this reason, project risks need to be identified and addressed in the design stage of any project.

A detailed analysis of commercial use, size of units and completion timings of developments are vital for any project. Detailed studies of market demand are equally important from the point of fully utilising the services to ultimately generating income from paying user charges. The main elements that therefore render a development commercially viable include: ensuring adequate project revenues are generated and more importantly the timing of those same revenues converting into cash generation in relation to the investment made, whether the investment is made in cash or in kind; the on-going costs associated with the general operations and maintenance of the property; and all aspects associated with ensuring that the property is a socially inclusive development operating in a systemic and sustainable manner. Moreover, a development needs to be environmentally sustainable and have a framework to enforce quality of service, preservation of public interest, and economic sustainability.

Projects need to be functional & ergonomic and ultimately respond to the demands of the market. A commercially viable project addresses demand for services in an economically sustainable manner. Project analysis and structures should be designed in such a way as to effectively mitigate risks of implementation and provide overall better long-term management.

Do these elements vary depending on the type of development?

For any type of development, be it an office block or commercial complex, a new building or a restored palazzo in Valletta, the key elements are still applicable. However, the dynamics of each element change for the different typologies. Capital expenditure also varies – yet ultimately every project needs to be economically sustainable and render adequate returns.

What services does Firstbridge offer?

When it comes to the details that matter in this ever-growing industry, Firstbridge can serve as a pivotal information centre on which prospective investors create and build upon their decisions. As a team, we offer an innovative approach at widening business ideas, ultimately helping clients make an informed decision. Be it by way of feasibility studies on projects and designs, advanced financial structuring and modelling, to project assessment and advice on purchasing and selling real estate in a tax efficient manner, Firstbridge is helping to ensure property investors are making a more informed decision. We also assist in assessing the right balance between debt and equity components, ensuring the right sources are used to support in the structuring of the project. Most importantly, we provide independent, expert yet fully transparent advice, assisting clients at both ends of the spectrum and bridging the gap between themselves, the designers or architects and the investors and lenders. We also assist clients who are seeking finance for their projects by outlining the main investment attractions of the development, in line with demands of the different investors or financiers.

Firstbridge, through its tailor-made approach, is ready and able to provide the modern, holistic way of ensuring that investment is a success.

Sarah Muscat, an architect and qualified accountant, leads the property financial advisory division at Firstbridge, a multifaceted professional services provider based in Malta. Muscat’s expertise lies within the area of business advisory with particular focus on projects related to property transactions.