CASE STUDY 1:

Property valuation and renovation during a crisis: real-world insights and methods

Since 2022, Germany’s ongoing property crisis has triggered a surge in restructuring efforts across the industry. Project developers, investors, and appraisers alike are navigating major challenges in assessing and renovating existing buildings. This case study walks through a real-life example, illustrating how renovation reports are created – and how modern valuation techniques, especially the Discounted Cash Flow (DCF) model, play a key role.

Initial situation and the challenge

A project developer in southern Germany had acquired an office property just before the market downturn. As the maturity date for senior financing approached, repayment was no longer feasible. In order to plan the next steps, a renovation report was needed to determine the property’s current value – considering multiple rental scenarios.

Both senior and junior lenders required value estimates across various development paths, ranging from worst-case to best-case scenarios.

Valuation process

To produce the renovation report, the following steps were carried out:

Why accurate valuation matters in a crisis

In Germany, valuations are governed by ImmoWertV regulations, which define standardised methods such as the comparative, income, and asset value approaches. But in real-world practice, several issues emerge:

Valuation reports are often outdated or based on unrealistic business models.

Preparation times can be lengthy – an issue during fast-moving crises.

Assumptions are frequently too optimistic, leading to flawed decision-making.

To address these problems, valuation models need to reflect a range of potential values. The DCF model has become a particularly effective tool in this context.

The Discounted Cash Flow (DCF) Method: How it works – and its limits

The DCF model evaluates properties from an investor’s perspective. It forecasts income and expenses over a specific period and discounts those figures to their present value.

Income:
Projected rental income, adjusted for inflation, market shifts, and lease terms

Expenses:
Operating costs, maintenance, administration, vacancy rates, and tenant improvements

CapEx:
Cyclical investment costs

NOI (Net Operating Income):
Income minus expenses – used as the basis for cash flow analysis

Terminal Value:
The estimated value at the end of the forecast period, calculated using a capitalisation rate

To deal with uncertainties, three scenarios – worst case, base case, and best case – are developed to reflect valuation ranges.

Limitations:
Long-term projections are inherently uncertain, especially when forecasting rent trends or cap rates. Properties with seasonal or unique characteristics add further complexity.

Conclusion: Flexibility is essential

In today’s volatile market, flexible and up-to-date valuations are more important than ever. Traditional appraisals often fall short. That’s why models like DCF – despite the risks tied to forecasting – are essential tools. They offer valuable insight, define realistic value ranges, and help investors make informed decisions.

CASE STUDY 2:

Sale of an office property from insolvency

Initial situation

A project developer in southern Germany acquired an office building before the onset of the real estate crisis. As economic conditions worsened and senior financing reached maturity, the developer could no longer meet repayment obligations. This ultimately led to the company filing for insolvency.

The Challenge

The insolvency administrator was tasked with selling the property in a way that would maximize returns for creditors. Several key factors had to be considered:

Falling property values and an unstable market

Uncertainty around future rental income

Renovation needs and associated investment costs

The need for a realistic and transparent valuation to appeal to potential buyers

Our Approach

1) Renovation Report:
A detailed report was created to assess the current condition of the property, identify necessary renovation work, and evaluate various rental income scenarios.

2) DCF-Based Valuation:
Using the Discounted Cash Flow (DCF) method, worst-case, base-case, and best-case scenarios were calculated to establish a realistic range of potential sale prices.

3) Market-Oriented Sales Strategy:
Based on these findings, a market-appropriate price was set, and the property was actively brought to market.

4) Negotiation Phase:
Prospective buyers received clear and transparent information about the property’s value range, as well as the associated risks and opportunities – fostering trust and enabling informed decisions.

5) Sales Proceeds:
The resulting proceeds were used to repay creditors. Thanks to a realistic valuation and open communication, the highest possible price was achieved under the circumstances.

Result

The property was successfully sold within six months of the insolvency filing. The well-substantiated valuation and transparent scenario planning gave buyers the confidence they needed. The proceeds covered a substantial portion of outstanding liabilities, ensuring creditors were treated as fairly as possible.

CASE STUDY 3:

Side-stepping ESG blunders – making your real estate portfolio fit for the future

Initial Situation

An institutional investor managed a sizable real estate portfolio consisting of both new and existing buildings. Historically, the focus was placed almost entirely on short-term financial returns. ESG (Environmental, Social, and Governance) factors were only considered occasionally – and mostly to tick regulatory boxes. But as pressure from regulations grew and the urgency to reduce CO₂ emissions increased, it became clear: without a strategic shift, the portfolio risked becoming filled with stranded assets.

What went wrong – key mistakes identified

1) Treating ESG as a compliance exercise
ESG was seen purely as a way to meet legal requirements and secure certifications. It wasn’t used to shape investment decisions or guide long-term planning.

2) Lack of reliable data
Decisions were being made based on inconsistent, incomplete, or unstructured data. This made it nearly impossible to accurately assess the carbon footprint or renovation needs of individual properties.

3) Neglecting Existing Buildings
While new developments and ESG-flagship projects received attention, existing properties were largely ignored. These buildings suffered from poor energy efficiency, outdated systems, and significant renovation backlogs – creating a looming liability.

4) No Strategic ESG Integration
ESG goals weren’t embedded in the investment strategy. As a result, opportunities to drive value and mitigate risk through sustainability were completely missed.

The Fix – A New ESG Strategy

1) Making ESG a strategic management tool
ESG targets were embedded directly into the investment strategy. CO₂ pathways were defined and actively used in decision-making around capital expenditures and renovation planning – backed by relevant KPIs.

2) Building a reliable data foundation
A structured and standardised data collection process was implemented, creating a solid base for future investment and renovation decisions.

3) Conducting a full portfolio analysis
A thorough technical and energy performance review was carried out across the entire portfolio. This helped identify specific renovation needs and allowed for targeted interventions.

4) Fully integrating ESG into investment strategy
ESG was no longer an afterthought – it became a core component of investment decision-making, helping unlock value and reduce long-term risk.

The Result

Thanks to this strategic realignment, the investor successfully avoided stranded assets and future-proofed their portfolio. ESG was no longer a compliance checkbox but a powerful management tool – enabling sustainable value creation and long-term risk mitigation.