Financial Strategies of Real Estate Companies in Sweden : Navigating Economic Cycles

Abstract: The real estate sector has been heavily impacted by rising inflation and subsequent interest rate increases. This is placing pressure on all real estate companies with higher levels of debt. The rising interest rates are leading to increased costs and making it more challenging for these companies to refinance their loans. As a result, real estate companies are facing greater financial strategy challenges compared to the previous era of low interest rates.  The aim of this paper is to explore how Swedish real estate companies navigate in a financial perspective during economic cycles, investigating their strategies during and prior to an economic downturn. Previous research has explored the risk management strategies used by real estate companies to prepare for a potential upcoming recession during the Covid-19 pandemic. Additional research has addressed real estate strategies during the 2008 crisis. However, this study specifically focuses on the current market situation characterized by increasing inflation and interest rates. A qualitative research method is utilized to explore real estate companies' financial strategies during and prior to an economic downturn in the current market. The study commenced by selecting real estate companies of various sizes, representing different market segments, and encompassing both privately owned and publicly traded firms. This approach provided a comprehensive perspective and allowed for the identification of differences and similarities among the companies. 15 semi-structured interviews were then conducted with representatives from these companies, primarily CEOs and CFOs. The findings highlighted variations in strategies and preparations prior to an economic downturn. One significant finding from the study is the divergence in approaches among companies when facing an impending crisis. Only a few companies attempt to predict market trends, while others adjust their strategies only after an economic downturn has occurred. Many companies underscore the importance of stable cash flows, diversified financing, and careful monitoring of the interest coverage ratio, particularly in the current market environment. The relationship with banks and rating agencies also becomes increasingly crucial. While real estate companies share similarities in adapting to market conditions, their specific approaches and strategiesdiffer based on factors such as portfolio composition, financing preferences, tenant considerations, and acquisition strategies.