Why real estate investment fund managers need to focus on operations

Operations are the foundation of real estate investment fund success

It has become evident, especially during periods of intense upheaval, that there is a widening gap between funds whose investment advisors and managers are able to act quickly, and those who cannot.

With thousands of funds representing millions of properties in a vast range of asset classes, those who procure actionable information and act on it quickly are able to reduce risk and capitalize on rapidly emerging opportunities.

Efficient, responsive operations now play a key role in the success of commercial real estate investment funds. Reliable data, predictive modelling, accurate valuations, meaningful reports are all tools that CRE funds can utilize to gain a competitive advantage, attract and keep investors, and to grow the value of their offerings. Here are five reasons to drive operational improvement.

1. Investor appeal

Investors are more demanding about the performance of commercial investment funds than ever before, and when they aren’t satisfied, they are quick to make a change. Real estate investors have many options today. When a fund doesn’t meet expectations, they can quickly go elsewhere. Two practices can help protect a fund from investor fallout:

• Focus on investor expectations, not just regulatory requirements

• Meet investor demand for independence and transparency

2. Well-informed stakeholders

Knowledge is a powerful commodity. When it comes to information, lenders, investors, investment managers, fund analysts and others involved in CRE investments expect more value today beyond the reporting cycle. Four practices can help to provide the information and insights these stakeholders are seeking for their decision-making:

• Assessing risk is a top priority, enabled by stress testing and scenario analyses

• Understand drivers of performance at multiple levels: asset, portfolio, peer, market

• KPIs should be clearly defined, consistent and meaningful

• Harness technology to enable reporting timeliness and flexibility

3. Accurate and timely valuations

Many investment managers are sitting on dry powder, waiting for optimal buy/sell opportunities. Knowing where a fund currently stands in the market, how asset classes are performing and where the highest returns are coming from enables informed and timely investment decisions. Four practices are beneficial for understanding the current worth of a fund, valuing assets and making informed and timely investment decisions:

• Valuation processes must become more robust to identify opportunities and pressures

• Investors want to know both Net Asset Value (NAV) and Gross Asset Value (GAV)

• Protect the fund from perceptions of over-valuation

• Leverage technology to optimize the valuation process

4. Data-driven strategy

The commercial real estate sector is increasingly reliant on data to drive decision making, engage customers and enhance the value of assets, but many fund leaders and operators are overwhelmed by the avalanche of data they must now mine, manage and manipulate.

Despite the growing volume of data that is being produced, there continues to be a disconnect between the availability of data and the ability to translate this into meaningful insights.

Consider the following best practices to effectively utilize data as a strategic asset:

• Develop a data strategy

• Invest in good data

• Use good data to learn, stay current, and benchmark

5. Collaboration and agility

In a new environment that now demands constant change, CRE investment funds must become increasingly dynamic. It’s essential to be agile – able to respond to, and benefit from, change.

Today, few real estate investment funds are relying on traditional operating blueprints. Collaborations are increasingly fundamental to drive growth and profitability.

Two practices will help to ensure these partnerships provide the flexibility that an investment fund needs to compete and grow:

• Focus on efficiency and scalability

• Supplement internal technological capabilities