This article is sponsored by Alter Domus
When Alter Domus expanded its North American footprint, global real estate platform leader Alex Droste became responsible for overseeing the implementation and deployment of real estate accounting systems and other fit-for-purpose tools. His colleague Michael Gregori, managing director and the head of real assets for North America, is responsible for the ins and outs of financial and operational data, handling reporting needs and property management tasks within the surrounding platform. Together, they discuss how fund administration tools can help managers at a time of intense technological advancement.
What pain points are US real estate managers currently facing?
Michael Gregori: Data. The desire for data, and what to do with it, is more and more of a challenge for managers. It is one thing to collect data, but how does it get ingested, stored and utilized to make better investment decisions? Typically, assistance and use of tools and services around data feeds, automation, data warehouses, data lakes, reporting and the like will help answer many of those questions.
Gathering as much data as you can from as many sources as you can, in a very consistent manner, is another pain point. Even more so now, with all the market technology available today.
Further, having to navigate complex fund structuring continues to be difficult for managers, as the investor base has gone more global in many fund vehicles. Managers are having to think of unique ways to set up fund structures via REITs, blockers, feeders and/or Luxembourg or Cayman vehicles depending on the particular investor tax base needs.
In addition, shorter timelines for reporting persist as well. There are increased investor and consultant reporting needs and the more data automation technology being utilized, the better.
Lastly, not only US managers, but managers globally are facing continued headwinds from a staffing perspective. There remains pressure on compensation and recruiting timelines. In order to provide some relief given scale, efficiencies and expertise, some managers seek to outsource and leverage our continued investments in our technology platform and people.
Which technologies are having the biggest impacts on the sector?
Alex Droste: The biggest impacts are coming from the data reporting tools that supplement the accounting systems. There are accounting systems and underlying general ledger software in a lot of different flavors, but many of them do not have a sophisticated report generation engine to support the level of customization that investors are ultimately asking managers to produce. Those requests then filter down to administrators like us and those limited systems just can’t fulfill many of them.
As accounting systems are used to their fullest extent, the greatest impact is that providers like us can bring our reporting technologies to the table and connect them in a relatively painless manner.
Many managers also don’t have a sophisticated communication management system and are relying on Outlook to send information to their investors. Basic email systems just don’t have the capability to efficiently generate the large volumes of required communications. Additionally, there are many customization requirements supported by various portal products that cannot be accommodated by manual email/communication means.
“As accounting systems are used to their fullest… the greatest impact is that providers like us can bring our reporting technologies to the table and connect them in a relatively painless manner”
MG: There is a desire for workflow technology to minimize email risk and to effectively set up calendars and different administrative processes within an efficient system.
We have also been concentrating on the number and complexity of waterfall calculations – understanding the different distribution waterfalls within fund structures, diving into all the partnership agreement language and deciphering it into a model that is most appropriate and can really produce those calculations on a consistent and efficient basis. Utilizing a waterfall tool can not only be effective in calculation accuracy, but there are products that can provide forecasting capabilities as well and can be a component of a manager’s overall technology platform strategy.
AD: A lot of sources of relief do exist, but for the most part they are further advances in the reporting space. For these incredibly complex calculation requirements, you need to have a fit-for-purpose reporting solution that can harvest the right data points and translate them into the right presentation. It comes down to the investment that managers and/or administrators are willing to put into their technology solutions.
How is the operational outlook for the sector?
MG: The outlook is very positive, because of the large investment that companies like ours are making in the right platforms and getting the right people in the right places. We talked quite a bit earlier about the pain points managers are facing, but also discussed the many advances in today’s technology landscape that help to alleviate some of those now.
The adoption and implementation of any new technology – or enhancement to existing technology – can present its own unique challenges, which is why we put a lot of time and investment into our training platforms for a proper change management environment.
AD: The philosophy for Mike, me and many other business unit and tech platform leaders at Alter Domus is ‘people, process and technology’. As long as we are advancing on all of those fronts, one of the great positives is that we are going to be able to give new challenges and more meaningful opportunities to the associates coming on board.
If we are up to speed with the technology to perform some of the more basic tasks that used to be done by hand, managers can actually offer them much more fulfilling work.
What are the risks associated with new technologies?
AD: One is obviously the cost. None of this is free, so if an organization wants to pursue implementation of technology on a full scale, it is generally a significant investment.
“The adoption and implementation of any new technology… can present its own unique challenges, which is why we put a lot of time and investment into our training platforms”
One of the offshoots of that is that if you look at the overall cost burden and decide to cut corners, you are going to create a platform that is full of other risks, because there will be a lot of manual work to tap data from one platform to another, instead of having tools that are properly interacting to ingest, calculate and produce data.
Often people have big dreams in terms of an improvement, but they only account for the bare minimum manpower for the project. They think they are going to get this done on the side, along with their day job, and then the project runs far too long, which creates more cost overrun. In some cases, the technology may also be near obsolete by the time the project is complete.
MG: Another would be not enough focus on, or investment of time into, change management and the training platform. You can have all the snazziest tools and strong desires, but if there is not a good change management plan in place and the adoption isn’t wide scale, the success of such tech adoption will be at risk.
How can technology be effectively integrated into an overall strategy?
Alex Droste: When evaluating your target operating model, you need to have a solid grasp on the tools that support your goals. To properly set your strategic roadmap, somebody needs to be in the middle, between operations and technology, or you need to have people that have a good understanding of both sides of the coin.
Those people need to be involved at the very start. Without an understanding of the full operations process and model, your end-state technology may not be what you set out to build.