Real estate portfolios are often identified as the largest part of a company’s financial statement, specifically when owning and operating real estate is your business. Identifying opportunities to capitalize on investments is critical to maintaining a positive cash flow. However, like many investment strategies, there are challenges that must be assessed, reviewed, and overcome on a regular basis. Understanding the primary challenges that exist can assist an asset manager in creating a strategic approach to managing their commercial real estate portfolio.
Diversification in Assets
Each property type provides both advantages and disadvantages. For example, multifamily assets can prove to be at risk for vacancy and possibly negative cash flow, though their return can be higher than average. On the contrary, single tenant CRE properties such as a bank can provide stability yet a low return. A great asset manager knows that identifying and maintaining a balanced portfolio requires both risk assessment and market analysis. Incorrectly conducting either of these can create financial upset for the portfolio.
Taking into consideration a diverse portfolio paired with the ever-changing dynamics of the market presents a new challenge: determining an investment strategy to match your company’s goals. Not every investment strategy is the same. Some investors and companies may be seeking a high-risk portfolio, bringing them the highest return available in the market. Others may be long term investors, strategizing for the future.
Either way, there are three steps that must be continuously monitored to ensure that a portfolio is meeting benchmarks; this includes review of investment opportunities both current and future, analysis, and due diligence. It is important that your portfolio is constantly monitored in order to meet your current objectives. Real time market research can be time consuming, but vital to this strategic planning. Additionally, asset managers should be implementing growth strategies while understanding the needs of the company and/or investors, which is the key to continuously meeting their investment goals.
Regulations and Legal
With diversification comes a complex infrastructure of operational and financial documentation. Each asset in each market will have a specific set of city, county, and state regulations that may differ. Some companies will staff legal counsel to assist with this complex, changing system; however, this approach brings an entirely new challenge to the table – cost. At some point it may be necessary to hire an expensive, but knowledgeable and efficient team of attorneys, entitlements specialists, and 3rd party consultants rather than relying solely on administrative assistants to handle the complicated regulations.
The variation and size of a company’s portfolio directly impacts the challenges related to managing the financial aspect of the real estate. An effective asset manager will ensure proper management of their portfolios. They will be able to provide in-depth financial analysis, which includes an assessment of the P&L statements for all assets. For single tenant NNN assets, this can be as simple as deducting the loan from the income. However, for assets that require improvement and management, such as retail centers or apartment complexes, this balance sheet can become more intricate and complex.
Financial challenges also go beyond the numbers to evaluating the structure and workflow of the personnel and management. Inefficiency and ineffective employees can be the cause of financial loss to a portfolio, just as severely as a tenant not paying rent can. Wasted money needs to be identified and new tactics must be developed for growth.
The Truth: It Comes Down to the Team
Each identified challenge related to managing a portfolio can be broken down to one crucial component: the team supporting the portfolio. Real estate is not only a numbers game. It takes a team of qualified, knowledgeable, and hard-working individuals to ensure an optimal future for each identified portfolio.
From administrative support to hands-on property managers, all members of the team are an essential part of the future, and it is up to the asset manager to perpetuate a corporate culture that promotes teamwork, responsibility, and growth.
If you are an individual that feels like you have the skills to help an investor or company overcome their challenges with managing their portfolio, you can review open job opportunities here.
On the contrary, if you are a commercial real estate investor or company looking to expand your team, including seeking a new effective asset manager, working with Building Careers can help you expedite the process. Finding a team that can work together to overcome problems presented on all aspects while being cost effective is fundamental. However, finding this team of skilled and experienced applicants in itself can be time consuming and overwhelming. We can help.