Purpose – This paper seeks to describe the development and testing of a depreciated replacement cost model for a portfolio of corporate real estate assets. Design/methodology/approach – A model was developed in Microsoft Excel, using depreciation rates and adjustment factors derived from readily‐available tables applied to elemental building costs. The model was applied to an actual property portfolio, with the costs of data‐gathering being estimated. Findings – The developed model proved to be effective in both planning and managing maintenance and capital expenditure, with application to life‐cycle maintenance and replacement decisions. The model was successfully used to conduct a replacement cost valuation on the test portfolio. It was found that the cost of the initial detailed data‐gathering could be repaid in a relatively short time by use of the model. Practical implications – The methodology appears to be widely applicable to corporate real estate portfolios, with depreciation rates and methods, and levels of detail of components used being able to be changed to suit individual country and portfolio circumstances. Originality/value – Provides a model useful for harnessing basic property information into a sophisticated day‐to‐day and strategic portfolio management tool.
Journal of Corporate Real Estate – Emerald Publishing
Published: Oct 1, 2006
Keywords: Real estate; Replacement costs; Life cycle costs; Assets valuation; Databases
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