It is a well-known fact that the commercial real estate (CRE) industry spends billions of dollars future- proofing its assets to stay ahead of the curve. Investors understand the importance of installing the latest and greatest in technology such as building automation and energy efficient systems. What is lesser known is that many of these assets are being managed with outmoded systems.
Almost one-third of global CRE firms are still using manual spreadsheets as their primary tool for asset and portfolio management functions, according to our recently released Altus Group CRE Innovation Report. When put into dollars, this translates into potentially $11 trillion of CRE assets around the world being managed via tools that are fraught with both inefficiencies and a high risk of human error.
The Great Recession focused many investors’ minds on the need for more transparency and reporting. We know that private equity real estate investors are increasingly looking for more benchmarking of performance and access to real-time data from their investment managers. They want to know exactly how their investments are performing compared to the market, the manager’s peers and against different asset classes.
Additionally, we are increasingly seeing requests from investors for supplemental information beyond higher level metrics when an investment’s results are outside of expectations. While providing this sort of clarity and additional transparency is routine for public real estate firms, it is increasingly becoming the norm for private firms as well. However, what is different in the private equity real estate space is that these requests for supplemental information can vary widely in format by each investor.
As a result, firms need to be equipped with the right tools and software to quickly and accurately answer the range of questions that investors are asking.
Compiling this sort of reporting and updates using manual spreadsheets and disparate sources of data could take weeks, even months, in some cases. In this time, market conditions could have evolved, rendering the information out of date before it is even completed. Moreover, legacy tools manage information in data silos, making it difficult to provide a top-level look at an investor’s portfolio due to the time taken to aggregate multiple sources of data.
Our clients are increasingly telling us that having good data management and the ability to deliver transparent data to investors is winning them business and has quickly become a major factor in the majority of today’s requests for proposals. Those who are equipped with strong technology platforms and can deliver data to their investors with confidence put themselves a step ahead of the competition. In this new era of increased transparency, some investment managers are even providing investors with online portals, so their clients can see the exact same data that the portfolio manager sees. Not having the integrated tools to provide this sort of information may result in investors viewing firms as out-of-date and could potentially threaten their ability to attract their share of the unprecedented amounts of capital that are predicted be allocated to the CRE industry over the next decade.
While the number of firms still managing assets in spreadsheets is disquieting, our report also found that the majority of firms are prioritizing investments in technology and process improvement to support their asset and portfolio decision making. More than two-thirds of these firms say they would realize a significant impact on investment returns by improving their asset and portfolio management decision making effectiveness. This is an encouraging sign that the industry is headed in the right direction and also a warning to firms that are not prioritizing investment in technology that they could get left behind.
The recent surge in capital allocation that the industry has seen in the past two decades is very much just the beginning, with record-breaking capital injections from institutions predicted over the next decade. In what promises to be an increasingly competitive field, firms are going to need to shift to more up-to-date asset and data management systems to be able to react quicker to investor requests and changing market conditions and to make more informed strategic investment decisions for their clients.