Peter Wiegand
Partner
Deal Advisory
Dr. Kristin Kriemann
Senior Manager
Deal Advisory

Generating Liquidity Capacity
Reorganization of structures and processes

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Real Estate Bulletin© 2023 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of independent member firms affiliated withKPMG International Limited, a private English company limited by guarantee. All rights reserved.

Economic conditions make it difficult to secure solvency
The real estate sector tends to follow the real economy though with a delay in some areas.
However, we are now seeing the effects of the current crisis, which has been shaped bymany factors, in the real estate market as well. Increased interest and ancillary costs, changes in financing conditions, investment needs arising from ESG issues, and commodity andlabor issues in the market will have a significant impact on the financial scope of real estatecompanies and require additional, previously unplanned liquidity. Therefore, it is becoming
increasingly important to plan early and understand long-term which expenditures will bemade in order to remain able to act. Additional expenditures, such as outlays for achieving
ESG compliance, are indispensable and make securing solvency quite difficult.

It is not always possible for the financing banks toprovide the additional liquidity required exclusively,
especially in the current economic situation. Rather,
there is an interest on the part of lenders to criticallyscrutinize existing (cost) structures and processes inorder to adapt historically grown structures andprocesses to current requirements and needs andthus, release additional liquidity potential.
Cost-effectiveness calculations are more important than ever before
Previously presented profitability calculations werebased on the prevailing structures of real estatecompanies. The economic framework conditions todate led to the perception that questioning themeaningfulness of existing structures and processes
in the real estate industry was largely unnecessary.
There was little incentive and hardly any pressure toact to streamline existing organizational structures andprocesses and thus make them more efficient. The
current economic climate has heightened awarenessof the need to identify approaches to increasingefficiency, as ongoing inflation, rising ancillary costs,
rising interest rates and also the decline in demand are
putting pressure on returns from real estate. Amongother things, excessive process costs, redundancies
as well as duplicate structures in the organization anda lack of allocation of roles and responsibilities also
lead to inefficiencies. Reducing the complexity ofstructures and processes is therefore an accompanying approach to cost reduction.

efficiency enhancements with direct cost savings offer
additional liquidity potential, which can, if notcompletely offset, at least reduce the required capital.
An important prerequisite for this is the creation of anawareness that historically evolved structures andprocesses contain previously unplanned potential for
efficiency enhancement and optimization. The
potential they contain can help to safeguard liquidity
and earnings. At the same time, both the quality andspeed of processes can be improved, which in turnincreases the satisfaction of the stakeholders involved.
Once the decision has been made to reorganize theback office, the type and scope of the reorganizationmust be defined in detail. The targeted reorganization
will mainly take place during operational business.
Against this background, a structured approach andexperienced management are essential forimplementation and success.

In the real estate industry, the improvement of returns
can be achieved through the implementation ofreorganization projects with regard to the structuraland processual organization. In addition, targeted

Back-office Performance Factors© 2023 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of independent member firms affiliated withKPMG International Limited, a private English company limited by guarantee. All rights reserved.

21Possible approaches for targeted yield improvement are shown in the following figure. It includes approaches toreorganizing the organizational structures and processes.

Figure 01:
Approaches to the reorganization of the organizational structures and processes
Starting Points
Focus

Focus on core business, reduction of redundancies, bundling of decentralized
tasks, standardizations

Outsourcing

Outsourcing of loss-making service areas

Insourcing

Use of free resources to improve results and increase quality

Overheads

Adjustment of cost structures, reduction of overhead costs, simplification oflegal structures

Source: KPMG in Germany, 2023

Identification of optimization potentials in thereal estate industry
A central question here is how can an organizational
structure and process organization be achieved by
optimizing functions and processes in practice in orderto establish a cost-efficient corporate structure withsensible processes? The objective of the following
description is to define the target organization for
performing tasks in the necessary strategic real estatefunctions (owner:in, user:in) and the operational realestate functions (i.e. provision, management andutilization of developed and undeveloped properties).
Status quo analysis and target definition
At the beginning of the reorganization, kick-off
meetings are held with the client/principal tounderstand and appreciate short- and medium-term
strategic objectives and necessities.
In parallel, a review and analysis of all relevant
information and available documents relating to thearea under investigation as well as the existingprocedural regulations is carried out. In addition, theas-is organization will be surveyed and the as-is
process model as well as a personnel allocation (FTEanalysis) will be completed on the process level. The
creation of transparency about the status quo of tasks
and resources for the identification of cost drivers
represents a fundamental basis for the design of thetarget structure.

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The current cost development of, for example, interest
and ancillary costs for energy and gas also increases
the need for a detailed operating cost analysis. This
involves comparing incurred operating costs withrelevant benchmarks from a representative data poolfrom various available sources. From this, target values
can be derived for the company in question. The
orientation of future processes is mainly based on
already identified best practice solutions from ourmany years of experience. The framework conditionsof the target organization including the fundamentals
of strategic portfolio management (including data,methods, capacities, processes) are discussed withthe client and finally defined. The conception of thedesired target organization as well as optimized
procedures of real estate management processes isalso carried out in comprehensive discussions, inwhich conclusions and alternative courses of action
are presented in different scenarios of the model. It isessential here that the analysis of the respective
business and strategic advantages and disadvantagesof the various options is taken into account in therespective scenarios.
Tool-based implementation of measures to achieve
goals
Once the decision on the target model has been
made, the implementation of measures can begin. By
comparing the actual situation with the target
situation, the action steps for achieving the target
processes and target organization are identified.

Real Estate Bulletin© 2023 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.

It is essential here that the individual target processes
are described taking into account the optimized depthof added value. The fields of action and potential forachieving the economically meaningful savings target
can then be qualitatively derived. In addition, thesavings in the target concept compared to the actualorganization are simulated within the framework of aquantitative model and the concrete improvement of
the liquidity/profit situation is derived. As a result, theperspectives for the alignment of the real estatebusiness in the Group are shown and time-boundwithin a catalog of measures. To achieve the targetstructure, packages of measures are defined withconcrete actions and associated activities. The key tosuccessful implementation is a consistent structure
and a focus on the essentials. To create commitment,
it is recommended to define responsibilities and toplan the timeframe for implementation.
The use of specific tools increases the commitment of
the implementation process. In the course of thetool-based solution, it becomes possible to achieve
centralized control. In addition, the focus on individual
measures to unintentionally deprioritize othermeasures is achieved.

The described development from the actual to thetarget organization requires a precise definition ofmeasures. To this end, potentials are identified andnamed at the work level within a defined time horizon.
To ensure that the measures can be evaluated, theymust be quantified with a realistic effect, which should
ideally be differentiated by quarters and by months
and backed up with responsibilities. It should also betaken into account that measures with the highest
possible probability of occurrence should be targeted.
Degrees of hardness are defined for the definedprocess steps or sub-steps on the basis of tools. A
significant advantage arises from the use of tool-based
project management solutions, in which the progressof the work can be seen by all those involved
according to the situation, thus, creating transparency.
With the new, generally leaner organizational structure
and process organization, the company is not only able
to achieve savings, but also to maneuver adequately
through more difficult times.
Shaping your future starts now!

Back-office Performance Factors© 2023 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.

23

Conclusion/Key Facts:
Macroeconomic conditions, in particular
the rise in interest rates and inflation, as
well as the need to invest in order toachieve ESG compliance, require
additional, previously unplanned liquidity.
Among other things, changed financing
conditions require companies to releaseinternal liquidity potential.
The reorganization of structures andprocesses is one way to generate at least
some of the required liquidity.
With a structured approach to theidentification and subsequent
implementation of optimization potentials,
we support our clients in maneuvering in
the current situation.

Peter Wiegand
Partner
Deal Advisory
T +49 30 2068-4348
KPMG AGWirtschaftsprüfungsgesellschaft
pwiegand@kpmg.com

Dr. Kristin Kriemann
Senior Managerin
Deal Advisory
T +49 30 2068-1746
KPMG AGWirtschaftsprüfungsgesellschaft
kkriemann@kpmg.com
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Real Estate Bulletin© 2023 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved.