The Inevitable Investment
Historically, companies have added staff as AUM has increased. In fact, many organizations have seen parallel growth in head count and AUM. While other industries have leveraged technology to automate routine tasks, the real estate industry has lagged behind and pushed Excel to feats that would impress Bill Gates. Fortunately, there is a better way to manage the business.
The “Life of the Asset” Challenges
During the early stages, acquisitions officers often work independently and use a variety of spreadsheets and software to track the real estate deal pipeline. This information is rarely integrated with the rest of the firm outside of the investment committee package. Key information, which is important to the rest of the organization, ends up siloed in Excel or a deal pipeline system.
Underwriting is done via Excel or another financial modeling tool and stored on a file share. When models are updated, versions are often not saved. When relying on Excel, companies often have the problem of properly evaluating performance against the original underwriting models.
The financing pipeline is tracked in Excel and rarely shared outside of the acquisitions team or capital markets group working the deal. During the closing process, documents are stored in a file share, content management tool, or even a filing cabinet. As a result of this process, valuable information needed by the entire firm becomes locked away on paper, hard drives or email.
While these problems are significant, they become more troublesome when the deal is finally closed. At that point, portfolio and asset management team members need the information that the acquisitions, underwriting, financing, and closing teams have been keeping in their respective silos, and the effort to organize and transition what’s needed post-close becomes a Herculean effort or chaotic at best.
The problem only gets worse from here for most real estate investment managers. Asset managers require updated accounting, financing information, and rent rolls to perform rolling forecasts/projections. Because this information is stored and maintained in disparate off-line systems, Excel becomes the only tool available for reporting.
Because of these disjointed processes, monthly and quarterly reporting becomes an all-hands-on-deck manual effort. The amount of human involvement provides a myriad of opportunities for errors that could result in reputational damage, not to mention burning out key employees. Continual one-off reporting requests add to the already enormous amount of manual workload resulting in a waste of key employees’ time and the firm’s money.
In addition to internal needs, investors are demanding quicker turnaround in reporting cycles, both in standard reporting and ad-hoc needs. Investor reporting demands are driving real estate investment firms to provide real or near-time access to fund and portfolio performance information. These reports are often generated in Excel and either posted to a shared drive or an investor portal. More savvy investment firms have automated some of the reporting to the investor but there is significant legwork behind the scenes to provide this transparency.
Historically, firms have increased head count to manage the workload with an army of IT staff to develop custom solutions or extra employees to handle the manual processes. Throwing people at the problem provides no economies of scale.
Excel Can’t Keep Up
Excel can be a useful tool for modeling, ad-hoc reporting, and what-if scenarios, but it is not a database, nor is it easily accessible to a large audience. To keep pace with the market without increasing unsustainable head count in downturns, firms should reduce reliance on Excel and manual processes and look to standardize.
Let’s take a look at how automation can work for the real estate investment industry:
Automation in Action
It’s a very different day in the life of the asset when asset management firms are fully automated from the point of acquisition to investor-ready reports.
• The deal pipeline is integrated with the rest of the platform.
• Final underwriting assumptions and models are captured in central database for asset management to perform look back/performance reporting.
• The closing team has automated checklists and workflows that track the status of the transaction.
• Fund-level returns and what-if scenarios are managed with modeling, financing, and reporting information.
• A complete view of the portfolio provides advanced reporting and tracking of key metrics.
• Financing information is integrated with accounting and other key asset management information to facilitate reporting needs.
• Assets are seamlessly managed with tenant/lease data, budgets, accounting, debt and property information, valuations process and reporting, and development and construction tracking.
Investing in Automation Software
The technology behind a real estate investment management software program is complex, but using it should not be. When reviewing your options, check first for usability, as user adoption is key to success. Also, look for accessibility and flexibility as the software should allow users access from anywhere and be configurable to meet their needs. Automation should manage the complete life of the asset, starting with acquisitions and continuing through closing and day-to-day asset and portfolio management. Reporting should be simple and streamlined and provide transparency for investors.
Your team may have some initial reluctance in giving up their Excel spreadsheets. Old habits die hard, but the long-term benefits will pay off.
What’s more is, all data and records are organized in one location—clean and simple. Since everything’s together, reporting is programmed into the system one time and ready for investors whenever it’s needed. No more chasing around data at the last minute. And for that, your peers, employees, and investors will thank you.