Creating Enterprise Value in Private CRE

Creating enterprise or market value in the corporate sector is the envy of every chief executive officer in the country. Enterprise value is defined as the market value of the company’s common equity plus the market value of the debt less the amount of cash and marketable securities. Creating enterprise value is accomplished by a coherent policy focused on three corporate maxims; company growth and strategy and capital allocation. All successful companies and CEO’s excel at these three adages and are rewarded with higher stock prices and increased equity value. In the CRE world, there is little attention paid to creating enterprise value except at the public REIT level.

Private CRE companies are the primary entities that should be immersed in creating enterprise value in their firms as they have the flexibility in corporate structure and since they are private do not have to provide financial reports to outside parties other than their lenders and investors. Enterprise value in CRE is similarly defined as above in corporate America, however, market capitalization is replaced with the owner’s net equity value in the real estate assets plus the imputed goodwill or market value attributed to the real estate operating organization. The market value of the real estate operating organization is derived from its reputation, property and asset management skill, financing prowess, development expertise, management skill, fee generation, quality of personnel and growth potential.