In recent years, countless property portfolios have required refurbishments and upgrades. Investing in Capex is once again a key focus for funds and asset management companies, playing a crucial role in shaping both profitability and overall asset performance.
For the CEO of SCI Value, Mr Salvatore Sesto, engineer, the first point to clarify concerns its application.
“It is important to clarify the context in which Capex is being used. When considering Capex costs in the context of property company management (i.e. routine maintenance and, in some cases, extraordinary maintenance), it is necessary to acquire a thorough history of maintenance work carried out on the property so that future budgets can accurately reflect needs.
Decisions should not rely on the cost of past interventions as the only reference. It is essential to understand the nature of the intervention and assess it both technically and financially, updating figures based on recent market research and a realistic review of the asset’s state of repair.
Capex for major refurbishments or new developments is a different matter. In these cases, project planning and cost estimation must follow strict processes. The project and bill of quantities form the backbone of the investment and determine Capex allocation.
Outdated and incomparable pricing lists lead to Capex figures that don’t match the real requirements of the investment. SCI Value’s Reverse Value Engineering RVE® method recalibrates costs to reflect real market values and ensure the optimal use of financial resources.”
The difference is methodological rather than operational: the way Capex is organised determines the soundness of the intervention.
Technical accuracy; strategic alignment
All too often, investment is treated as a mere box-ticking exercise. In practice, what really makes the difference to a property’s prospects is the quality of the technical and economic analysis behind it.
As Mr Sesto notes:
“The cost of refurbishing or maintaining a property can’t simply be seen as an aside. It’s during Capex planning that major errors can creep in. This is where further investment is needed.”
The accuracy of estimates becomes a strategic choice, especially in relation to all future objectives.
“When maintenance plans or new projects are based on accurate costing, it is possible to maintain or even increase an asset’s value from an investment perspective. This is exactly what Reverse Value Engineering RVE® makes possible.”
Getting this right also has a knock-on effect later down the asset’s lifecycle. For divestment or refinancing, ensuring alignment between the project, costings and market values is vital for realistic valuations and protecting the investor’s expected returns.
The most common mistake
In the acquisition or repositioning phases, poor methodology is still the biggest risk factor.
For Mr Sesto, the most frequent error is:
“Resorting to approximate or inconsistent methods. Using as a comparative reference construction or reconstruction from a different asset, even in the same location, almost inevitably leads to underestimating or overestimating Capex, which puts the investment at risk.”
It is not about the expenditure itself, but rather the criteria used to determine it.
In the modern real estate sector, managing this process is about overseeing the overall quality of the transaction, transforming an accounting item into a tool for creating technical and economic consistency capable of protecting and consolidating value.
