Strategic considerations for real estate investment: Sustainable business models

By Peter Fassl and Helmut Seitz, HSP Rechtsanwälte GmbH

As outlined in the first two articles of this series, the ever-increasing scarcity of arable land in combination with an exponentially increasing world population makes it necessary to rethink real estate business concepts that have been in use to date. At the very least, adjustments need to be made.

A horizontal division of the market is one potential way to address the challenge by "re-dividing" the value chain into a land owner (depositor), a building lease holder (investor), and the actual user (tenant). As explained, land has become such an expensive commodity that the landowner can be satisfied with even the smallest returns, as he profits from inflation in the long run. The investor has the great advantage from a cash flow point of view, as he has to spend less money than if he were bank-financed. In addition, inflation does not have a negative impact on him in the long term. The longer he uses the property, the more favourable his long lease payment becomes in comparison to a newly concluded contract.

But all of this is only the tip of the iceberg. A successful decision in the future will depend primarily on the answer to only one question: “How sustainable is my business model for this one property?” Here the approaches are endless, but we would like to mention just a few.

Wherever possible, do not seal any more green spaces. Wherever possible, compact usable areas horizontally and build over existing sealed areas. If a green area must be sacrificed, exhaust all possible measures to ensure rainwater absorption and allow replacement planting both horizontally and vertically.

In agricultural use, do everything possible to promote the build-up of humus and avoid any further erosion. The CO2 storage capacity of humus could turn the climate crisis around. This would require landowners to commit to sustainable agriculture or to contractually transfer this commitment to their land managers. We all live from the yields of the soil. But only soils that grow humus, hold water, protect against erosion, flooding and flash floods, and store CO2. In the future, it is quite possible that the yield from agricultural land will not only consist of its products, but also of the premiums that result from the proven storage of CO2.

Exploit all possibilities to make buildings as energy-effcient as possible – be it through thermal insulation, energy generation via photovoltaics, photothermal energy, or wind power. Wherever possible, use sustainable CO2-neutral, and above all, recyclable materials.

This list can be extended endlessly, and most of the measures mentioned interlock in excellent fashion. The European Union's Taxonomy Regulation provides a good point of reference. We are convinced that real estate investors who pay attention to these points and incorporate them into their approaches will not only enjoy financial success but also derive the greatest imaginable pleasure from their investments.

This is the last of the threepart series related to the topic Long Lease vs. Freehold.


Peter Fassl

Peter Fassl

GGI member firm
HSP Rechtsanwälte GmbH
Law Firm Services
Vienna, Austria
T: +43 1 533 0533
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W: hsp.law
Helmut Seitz

Helmut Seitz

GGI member firm
HSP Rechtsanwälte GmbH
Law Firm Services
Vienna, Austria
T: +43 1 533 0533
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: hsp.law


Published: GGI Insider, No. 119, May 2022 l Photo: danielschoenen - stock.adobe.com

 

 

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