Asset management 2.0

Allianz Real Estate’s CEO West Europe, Alexander Gebauer, details how managers can find new ways to create value and deliver for their investors.

Alexander Gebauer

Real estate investment management is many things, but it is two things above all else – a people business and, generally, a long-term play. And at the center of this are the asset managers, the people or teams managing the strategy for each property. For primarily core and core-plus managers such as Allianz Real Estate, and particularly where retaining income-producing assets is favored over asset sales, one of the ways we define success is the ability to consistently find new ways to create value in how we manage our assets.

The role is challenging because the nature of the job has fundamentally changed in recent years, as has the market environment in which we operate. Creating economic value in real estate is more and more related to the building’s physical and digital transformation to fit the needs of very specific and more demanding tenants. More than ever before, asset managers will need to develop their technical and digital expertise.

Business plans have become increasingly complex and their execution more operational – managing projects, steering operating partners and making complex decisions. Asset managers need to stay in touch with their ever-evolving market to understand the choices that tenants make from the options they have.

They also need to learn how to make the best use of the wealth of data becoming increasingly available – no more gut feeling, but data-guided choices that improve all aspects of the building’s management and how tenants get the most out of the building they occupy.

Will the job of an asset manager become more difficult? Yes, but at the same time a lot more interesting, multi-faceted, business-minded, lively and rewarding.

Ultimately, asset managers are here to deliver for their investors, and to do that they need to understand and anticipate the challenges that their tenants face. But the markets will not necessarily help them doing it. They need to show creative, investment-minded thinking and sound judgment on the basis of complex inputs, and have the ability to take bold decisions and to stand up for them. And here five ways to accomplish this.

1 Remember, there are three stakeholders

We are accustomed to always considering the first two main stakeholders: the investor and the tenant. The pandemic has highlighted that, increasingly, value resides in also meeting the expectations of a third stakeholder, the user.

As of today, asset resiliency goes beyond simply signing long leases; our management efforts have progressively concentrated on the curation of the product we are offering to tenants and on the services we are offering to their employees. While the investor quite simply wants the visibility on cashflow at the return they were promised at the time of acquisition or after committing further capital to an asset improvement program, post-covid tenants are wiser and, beyond location, are in the market for a safe, efficient workspace that is truly focused on the wellbeing of its users. The office of tomorrow should motivate employees to show up, work productively and, ultimately, enable the company to develop its culture and retain talent.

2 Be selective

As long-term investors with a €71.5 billion global portfolio, of which half is directly managed or held within joint venture equity investments, it would not be reasonable to run indiscriminate capex programs. We need to be selective and prioritize the assets in which unlocking value potential can be done at the most optimal cost-value ratio.

Selectivity means creating customized, sustainable capex programs in order to guard against buildings’ obsolescence while actively pursuing our trajectory to carbon neutrality. Innovation and digital solutions offer the infrastructure, but it is data analytics that are ultimately the new ally to active asset management and the primary differentiating factor to the competition.

3 Know your tenants, understand the market

This is essentially about removing risk from the portfolio, particularly during downturns, while retaining the flexibility to take advantage of market trends, but it stems from the manager‘s ability to predict and even influence tenant behavior and to understand the competition. It is also about creating the opportunity to secure a higher grade of tenant. At the same time, an optimized leasing strategy would deploy a mix of lease lengths, thereby always leaving the door open to capture market rent growth through either lease renewals or the attraction of new tenants.

4 Knowledge – through data – is power

Real estate will remain a people business, but data has become the enabler that amplifies the know-how and existing capabilities of the building’s asset manager. It is changing the entire value chain of property and facility management, blurring lines.

Data supplements – or verifies – the understanding of tenants’ needs learned from years of operating in local markets, enabling the manager to be in direct contact with the user – a task until now reserved for the ‘people on site.’ In parallel to helping predict tenant behavior, data is helping us to adapt the features and services of our assets to the demand of each submarket. This not only ensures that tenants use innovative features at their full potential, but also that investors reap the benefits of a higher demand and tenants’ willingness to pay for a fully-fledged asset.

What we see is that the industry is finally progressing toward dynamic space, pricing and leasing models that ultimately aim to increase the liquidity of an inherently non-liquid asset class.

5 Become futureproof

The covid-19 pandemic has shown us that ‘work’ in a number of industries and sectors is not necessarily a place to go to. However, it is also clear that permanently working from home – which after a while might feel more like living at work – is not the future either. There has been a power shift of sorts in favor of the employee in that going to the office is becoming, for some, a conscious decision to be taken on a daily basis. Futureproofing our portfolio means our buildings become a positive factor in that decision-making process; it means doing our part in giving users a compelling reason to go to the office.

So, how to do that? This goes back to knowing what value means to the tenant. Buildings have to offer more value-adding services to compete with the perceived conveniences of working from home. The office has to become part of the professional and social network of the tenant – a place of collaboration, inspiration and culture. They need to be safe environments where smart sensors, for example, regulate air quality or where cleaning is based on actual occupancy and the ground floors offer services that simplify running commissions during a workday for the employees.

Finally, there is the paramount role that sustainability is now playing for the attractiveness of a building both to the tenant, in terms of contributing toward their own ESG targets, and its users, in terms of having a great place to work.