Warehouse property market: leasing vs' owning

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Warehouse property marketleasing vs. owning

• AEB
• What is the logic behind logistics in Russia?

March, 2008
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Factors to consider
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To own or to lease?

• Ownership
• ?
• Expenses on acquisition/construction can be
  returned
• Building can be highly customized
• Independence from the will and quality of work of
  a third party developer, landlord, facility
  management company
• No risks related to the bad will of the landlord
• ?
• Considerable funds blocked in a low profit asset
• Time to start operations 2 years and more (in
  case of construction)
• Highly risky process of land acquisition and
  obtaining of necessary approvals and limits for
  utilities
• Higher construction costs on a small project
• Construction budget highly volatile
• Construction schedule highly volatile
• Interest on debt
• Market price reduction risk

• Lease
• ?
• Possibility to select one out of several options
  under construction
• Construction risks - on the developer
• Time to start operations 6-9 months (may be
  shorter)
• Funds are free to be used in core business, more
  profitable than the level leasing expenses
• More flexibility regarding expansion/moving
• When leasing in a large project savings on the
  scale
• With the long term lease stability and
  possibility to plan the operations development
• Facility management responsibility on the
  landlord
• Human and financial resources can be focused on
  the core business
• ?
• Expenses on the lease are not returnable
• Hard to obtain a highly customized building
• Dependence on the quality of developers work
  (timing, construction quality)
• Risks related to the bad will of the landlord

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To own or to lease?

• Basic analysis
• Lease
• Block 20 000 m2, class A
• Leasing expenses - 135 per 1 m2 per annum
  (triple net rent rate)
• Annual lease cost - 2 700 000
• Ownership (construction)
• Construction/acquisition costs, including land
  and utilities - 26 000 000 (based on the cost of
  1300 per m2)

Alternative investment possibilities may return
_____ ?
Savings on the lease 10,4 per annum
A thorough financial analysis requires more
detailed consideration of all factors, including
cost of debt, taxes, etc.
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Building a warehouse approximate timeframe
Entire construction process may take 24 42
months or longer!
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Establishing operations on a leased warehouse
approximate timeframe
0
-1
-2
-3
-4
-5
-6
-7
-8
t, months
Entire moving process may take 6 9 months
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Our Company

• Offices
• Warehouses
• Land plots
• Consulting services

• Praedium provides professional services to
  property owners, investors and corporate users.
  Praedium is a team of professionals, who have an
  extensive and successful experience in such
  spheres of commercial real estate as consulting,
  development, research and investments.

(495) 780?66?00 www.praedium.ru