Every managed asset should have a written business plan, and most do not. What exists instead is a model, which is not the same thing. A model calculates outcomes from assumptions; a business plan explains why those assumptions are the right ones, what has to be done to achieve them, who will do it, and what happens if it does not work. The model is the arithmetic. The plan is the argument.
The thesis has to be stated in one paragraph
A business plan opens by saying what will make this asset worth more at the end than at the beginning. Not a general statement about the market, a specific mechanism: the leases are below market and roll within three years; the building has unused floor area that planning permits; the tenant mix is wrong and can be repositioned; the asset is mismanaged and the cost base is inflated. If the thesis cannot be stated in a paragraph, it is not a thesis.
The capital plan is where plans fail
The single most common defect in a real asset plan is capital expenditure that is understated, undated or both. A credible plan sets out what will be spent, on what, in which quarter, and who has priced it. It distinguishes between capital that must be spent to keep the asset functioning and capital that is discretionary and expected to generate a return, and it holds a contingency that reflects the age and condition of the building rather than a conventional percentage.
Plans rarely fail because the rent came in below forecast. They fail because the capital expenditure came in above it, later, and had to be funded when funding was expensive.
Leasing assumptions have to be defensible
The plan will assume rents, letting periods, incentives and vacancy. Each of those is a market judgement and each should be supported: what has actually been achieved in comparable buildings recently, how long units genuinely took to let, what incentives were given. A plan assuming a rent nobody has achieved and a letting period nobody has matched is a plan whose downside has not been considered.
The downside is the part that matters
A serious plan runs the case where things go slowly: letting takes twice as long, the capital budget overruns, the exit yield moves out. The purpose is not pessimism, it is to identify at what point the plan needs more money, and to secure that money in advance rather than in the middle of a difficulty. This connects directly to the financing structure, since the facility has to be sized and dated for the downside case, as we set out in our note on exit and refinance.
The exit belongs in the plan from day one
Who buys this asset at the end, and what will they be looking at. A core buyer wants durable income and will pay for lease length and covenant strength; a developer wants the site; another value-add investor wants the next gap. The plan should be executed with the eventual buyer in mind, because the work that maximises value for one buyer is not always the work that maximises it for another.
Governance and reporting around the plan
A plan that is written once and filed is decoration. The plan is a live document, against which performance is measured quarterly, and variances are explained rather than absorbed. That is the reporting discipline we describe in our note on reporting and governance for investors in a managed asset, and it is what turns a plan from a fundraising document into a management tool.
Montclare manages and structures European real assets for institutional and private investors, from acquisition through to exit. Our services are set out on our services page.
This article is informational and does not constitute investment, tax or legal advice. Asset management and investment advice are regulated activities and the treatment of any transaction depends on its facts. Each engagement is subject to scope and applicable regulation.