Optimization of the real estate portfolio

Executive Summary

Optimizing the real estate portfolio is not an individual decision, but an ongoing capital allocation and risk management task. The aim is to systematically maximize the overall value of the portfolio under real constraints (financing, CAPEX, vacancy, use, regulatory requirements, ESG): Increase returns, reduce risks, stabilize cash flows and concentrate investment funds where they make the highest contribution.

USE CASE +37 million USD below!

Why now is crucial

Real estate is under multiple pressures: interest rates, refinancing windows, maintenance and energy efficiency costs, changing usage patterns and regulatory requirements. As a result, the spread between "top assets" and "problem assets" is widening. Without structured portfolio optimization, budgets are often allocated according to urgency rather than economic impact - with suboptimal ROI and increasing risk exposure.

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Complexity: dependencies and interactions

Portfolio decisions are rarely isolated. They are shaped by temporal, political and economic dependencies - and generate interactions between sub-areas (e.g. financing, letting, construction, operation, ESG). A measure in Asset A can influence the cash flow, CAPEX window, risk profile and covenants of the overall portfolio. This is precisely why an optimizing view of the overall system is required, not just of individual properties.

What "portfolio optimization" means in practice

Essentially, it involves a clear, quantified decision-making logic for each property and for the portfolio as a whole. Typical clusters of measures are

• Buy / Add: targeted acquisitions or increases with attractive risk-adjusted returns
• Hold / Operate: stabilization through rental management, cost optimization, targeted maintenance
• Invest / Upgrade: CAPEX to increase value (energy, modernization, quality of space) with a clear payback logic
• Repurpose: Conversion in the event of structural shifts in demand (e.g. office → mixed-use)
• Sell / Exit: Disinvestment with weak prospects or high capital commitment

Planning basis: estimated values that drive the decision

The economic quality of the optimization depends directly on reliable, transparent estimation assumptions - including scenarios and sensitivities. Central inputs are:

• Estimates of future revenues (rental income, indexation, new lettings, incentives, vacancy assumptions)
• Estimates of construction and operating costs (construction/modernization costs, operating costs, maintenance, energy, services)
• Total building space (total area, rentable area, space efficiency, utilization profiles)
• Tax (tax effects, structure, timing, loss offsetting, transaction taxes)
• EBIT (property and portfolio-related earnings contributions, operating leverage, cost sensitivity)
• Profit (net earnings effect after financing, taxes, CAPEX and operations)

The CFO perspective: performance indicators that count

Reliable optimization is based on a few, but hard key figures, consistent across all assets:

• Cash flow quality (stability, indexation, rental default risk)
• Risk-adjusted return (e.g. IRR/NPV with scenarios)
• CAPEX load & timing (maintenance, modernization, energy) under time windows and capacity limits
• Vacancy & re-letting risk (market, space quality, micro-location)
• Financing and covenant sensitivity (interest rate, LTV, DSCR, refinancing risk)
• ESG/regulatory risk (stranding risk, energy performance, compliance, political requirements)

Typical levers with a direct impact on earnings

• Prioritize CAPEX: Channel funds into measures with the highest NPV and measurable risk reduction
• Balance the portfolio: Reduce cluster risks (region, type of use, tenants, terms)
• Stabilize cash flow: Contract management, indexing, re-leasing strategy, operating cost leverage
• Exit discipline: sell assets where "further investments" only manage losses
• ESG as a value driver: energy efficiency where it noticeably improves financing, lettability and valuation

Result

Optimized portfolio management provides a reliable, board-compliant basis for decision-making: clear buy/hold/sell/invest/repose decisions per property, a prioritized CAPEX plan, transparent scenarios (base/downside/upside) and a measurable improvement in returns, resilience and compliance. This transforms real estate management from reactive problem solving to active, calculated value management.

Use case +30m CHF (+37m USD): Optimization of the Klybeck site (Basel)

The Klybeck site, a former Sandoz chemical plant in Basel, comprises around 300,000 m² of building land in a prime location with considerable development and value creation potential. The original project valuation by Central Real Estate AG together with Swiss Life calculated a return on investment (ROI) of 7.0% for the entire project.

However, this valuation raises a key question:
What economic potential remains untapped with classic valuation and decision-making logics?

Initial situation: classic project selection

In the context of a large number of possible project options, those sub-projects are often prioritized in practice that , viewed in isolation, promise the supposedly highest return. However, this approach neglects

• Interactions between buildings and construction phases
• time, regulatory and budgetary dependencies
• the optimal combination of uses, construction costs and cash flow profiles

The result is locally optimized individual decisions - but not a globally optimized overall portfolio.

The StratePlan approach

StratePlan takes a fundamentally different approach: instead of evaluating individual projects in isolation, the entire decision space is analyzed mathematically.

In the case of the Klybeck site:

• 32.768 possible project combinations were systematically calculated
• all budget, space, cost, time and dependency restrictions were taken into account
• determined the optimal sequence and selection of sub-projects

Calculation time: < 10 seconds

Result: Significant increase in value

The result deviated significantly from the original evaluation

• Optimal selection of 6 buildings instead of intuitive prioritization
• Adherence to all budget targets
• Increase in profitability from 7.0% to 11.38% ROI

While Central Real Estate AG had calculated an ROI of 7.0 % for the project scope, StratePlan was able to optimize the same project scope to around 11.4 % ROI.

This corresponds to an additional economic benefit of almost CHF 30 million (USD +37 million).

Classification

The use case shows by way of example that the decisive leverage does not lie in new properties, higher rents or additional capital - but in the calculated selection and combination of projects.

StratePlan replaces heuristic project prioritization with mathematically based decision-making intelligence, thereby revealing value potential that remains systematically hidden using traditional methods.

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