Investing for Success
The global commercial real estate (CRE) market continues to provide consistent year over year returns against a backdrop of slow economic growth and political uncertainty, positioning these assets as less of an alternative and more of a preferred asset class. However, for those looking to increase their positions in CRE, a search for the right partner can be a time consuming process of wading through the field of investment firms vying for additional funds. Most claim to have unique strategies, deliver superior returns, leverage deep bench strength, and years of experience – all meant to signal trust and credibility – yet all sound the same.
So how can you spot the real difference? Whether you are working with the largest global institutional investors or smaller boutique firms, we believe the most important difference can be found in a company’s operations, the means of getting you great returns. A starting point will always be in past results and the resources on hand to deliver those returns, but we believe the only hedge for continued returns is to understand how those same companies have invested into winning in tomorrow’s climate. This is especially true because the market is getting more complex, with volumes of new data, more stakeholders with varying needs, new investment vehicles, and more regulations – the stakes are higher.
The most important difference can be found in a company’s operations, the means of getting you great returns.
To manage these demands, appropriate investments must be made into advanced business processes and technology, not by just throwing more bodies at the problem. Specifically, solutions that can consume greater amounts of information and provide greater intelligence at a lower cost than current practices.
Knowing whether a firm has appropriately invested in technology or relied on brute force to deal with growing business needs can be assessed by determining how quickly it can manage simple requests today – considering that the demands will be higher in the future and require faster response times. Take the following questions as a starting point:
- How long does it take to gather the latest figures on the portfolio or fund’s performance for a quarterly review? Days, weeks, or months?
- How long does it take to answer one-off requests for information on a specific tenant in a specific asset in the portfolio? Days, weeks, or months?
- When a piece of prime real estate comes on the market, how long does it take to hear about it, assess the opportunity, and then take action to acquire it before someone else does? Days, weeks, or months?
- In situations of real adversity like a hurricane or sudden shock and downturn in the market, how long before this company understands the implications to each asset in the portfolio and what the best course of action is to take? Days, weeks, or months?
If your answers to any of the above are not just days, then you should be concerned because an organization’s decision to act this slowly is by choice, not by a lack of options available to resolve it.
In today’s technology-rich environment, assuming that it is sufficient to answer one-off questions from investors by sending out emails addressed to dozens of staff at once that will take weeks to resolve should be worrying. Solutions already exist that allow organizations to increase the speed of decision making exponentially, replacing manual collection and assessment of data from individual leases to market indices and run comparative assessments providing you with simple actionable business insights. Yet for some organizations, these opportunities seem like theories rather than attainable reality. Often this is caused by senior business leaders who are focused on getting the next deal done and often do not take the time to step back and look at their business operations to see how the right technology can more effectively help them achieve their goals. This has led to low standards of technology adoption throughout the industry – the end is the same, but the means to get there should evolve but instead have flat-lined.
How We Got Here
Consider a company that began in the 80s or 90s, staffed with top talent, well-funded and using the latest technology, probably Excel. Designed to outperform the expectations of investors, this company thrived with low overhead, decision makers close to the assets, and only a handful of core investors to manage. Over time they grew, acquiring more staff, partners, software, and investors all while the market evolved and became more complex.
Fast forward, and we are now seeing the current state of many organization’s business processes. Most have not scaled with diminishing marginal costs in mind; another seat was bought, another software integration, and another custom report. Top decision makers are farther from the front lines with more bodies needed to fill in and maintain the processes once designed for a smaller organization decades ago. Staff are now spending more time manually collecting data than they are adding valuable insights and old accounting software is attempting to be re-purposed as investment management products – all solutions that were designed to get by for another day or week.
We are also starting to see organizations who are embracing technology as an enabler for their success.
Conversely, we are also starting to see organizations who are embracing technology as an enabler for their success. These companies are consuming more information to make faster evidence-based decisions than their competitors while reducing errors, headcount, and ultimately costs. They are providing greater transparency to clients on how returns are derived and how risks were mitigated. So when we think about giving advice to CRE investors, it is hard not to pick the firms who understand the opportunity to invest in advanced solutions that don’t leave their investors waiting weeks for simple requests, but can answer them in hours.
Capitalizing on Opportunity Through Technology
For an industry that continues to provide strong returns to investors, the question of spending resources to evolve business processes can seem at odds with a positive present state. Yet as technology continues to advance, the benefits of operating more efficiently outweigh the costs of maintaining the status quo. We believe the time to capture these benefits is now when the investments in advanced technology will provide a competitive advantage for organizations. Not only will they ensure strong returns, but they will be able to do so while improving the level of service and transparency. So if you are looking to increase your exposure to CRE, we believe your best bet is choosing a partner who sees technology as an enabler