Investment Analysis

Improved Property Management

Tech advances help level the playing field for non-institutional owners.

Commercial real estate property management - historically slow to embrace change - has recently shifted dramatically from the “commoditized fixer-upper/rent collector” to a valuable extension of the asset manager. The growth of the property management role is greatly due to the extension of technological advancements to non-institutional clients. This access to proprietary programs and platforms has created a more even playing field in the competitive world of tenant recruitment and retention.

In addition, looking ahead to the potential impact of the proposed Financial Accounting Standards Board changes in lease structure and reporting, property management is playing a crucial role in providing high-yield services to investors in terms of connectivity with ownership and tenants, finance and preparedness, and sustainability.

Customer Reporting

Connecting with customers is at the core of advanced technological platforms for business use, and real estate is not unique in using them. What is unique is that small to mid-size asset owners can now access such platforms, which, traditionally, were only available to institutional clients. Thus, property managers can provide financial benefit to smaller property owners through implementation of global software such as MRI, Angus, and Yardi, providing them with institutional-quality reporting and work flow management. 

Beyond analytics and reporting on the owner's side, technology touches tenants directly through Internet-based work order systems that allow property management firms to aggregate information and create a faster response and stronger preventative maintenance programs. Prevention is further enhanced through risk management programs such as RiskCheck, which establish protocols and procedures and provide real-time identification, management, and monitoring of potential hazards. Off-site/real-time management and monitoring of assets reduces risk for private investors and owners, providing peace of mind to all parties involved.

Finance and Preparedness

Of immediate importance and attention to most are the proposed changes under FASB scheduled to go into effect in the next couple of years. While the exact details of the proposed lease accounting standards are subject to ongoing refinement, there are many things that real estate lessors can, and should, be doing today with respect to lease structures, business operations, and financial reporting processes.

To ensure that future income projections are accurate, property management should immediately conduct a strategic evaluation of the existing lease portfolio, starting with the largest leases, to properly assess how the leases will be accounted for under the new rules. One accounting and reporting software used by property management professionals is Yardi Voyager, a tool specifically designed for the commercial real estate industry with applications relevant to FASB. From this, the team can measure the impact on earnings before interest, taxes, depreciation, and amortization, or EBITDA, and other key financial ratios and evaluate whether there is any potential impact on loan covenants. Beyond that, consider renegotiating leases now, even if they are not up for renewal, in order to mitigate some of the less favorable impacts that would otherwise occur.

With commercial insurance prices up 2 percent in the first quarter of 2015, insurance premiums and emergency preparedness may be weighing on the minds of smaller investors and businesses. Beyond navigating coverage terms in line with budgets, property management firms today can offer the ability to provide bulk service benefits such as insurance coverage. This allows a private client with a limited portfolio to buy into a pool of assets all managed by a single property management firm, thereby spreading and diversifying risk across a large portfolio of assets and providing more expansive coverage at lower premiums. On the cutting edge of this service are firms that offer real-time quotes for investors-in just a few hours-by accessing proprietary software through an online portal.

If a disaster should occur or the need for general improvements should arise, property management firms with in-house project management capabilities can provide the expertise of a seasoned general contractor and monitor large projects. Project management responsibilities include program coordination, tenant improvements, relocation and expansion activities, and capital/building improvements.

The relationship-driven component within an overall real estate strategy is the “face” of the investor or property owner that tenants interact with on a daily basis. In this aspect, the need for a like-minded partner is still crucial; however, it is imperative that the operations of the asset are cutting edge. Due to emerging technology, the window has opened for non-institutional owners to gain access to institutional-quality software and services. Through these new efficiencies, property management is able to achieve higher yield on behalf of ownership.

 

Michael Vullis is a principal with Avison Young, based in Fort Lauderdale, Fla., overseeing the Florida region's 12 million-square-foot property management portfolio. Contact him at michael.vullis@avisonyoung.com.

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