Commercial Real Estate Investing
Corporations, family offices, and wealthy investors are dedicating a growing portion of their overall investment portfolio to commercial real estate assets. But commercial real estate assets require a specialized skill set and expertise that are quite different from those of investing in the capital markets. As real estate investment portfolios grow, some investors don’t realize the benefits of engaging a 3rd party asset manager nor do they know what an asset manager really does.
Below we will discuss what real estate asset management entails, why investors should outsource the asset management function (as opposed to doing it themselves or having property managers assume greater roles), the difference between asset management and property management, and other aspects of asset management which investors should be aware of.
Broadly conceived, the primary goal of the asset manager is to maximize the value of the asset for the investor. To that end, the asset manager oversees not only property management and leasing, but also financing, capital improvement programs, and the eventual disposition of the asset.
Some of the other duties of the Asset Manager include:
- Developing Operating and Capital Expenditure Budgets
- Negotiating Leases and Third-Party Contracts
- Managing Cash Flow and Monthly Owner Distributions
- Providing Acquisition Due Diligence Consulting for new properties
Could owners handle all of these responsibilities themselves? Technically yes, but asset management can be time-consuming and it requires many years of experience to master. That’s why a dedicated 3rd party asset manager, who does this full-time, is a good option for someone who doesn’t have extensive experience in the industry. For example, leasing a large commercial asset can be a significant undertaking. An experienced asset manager will negotiate both letters of Intent with brokers and lease documents with attorneys. A good asset manager will also be able to carefully balance not only what’s best for getting maximum short-term revenue for the property, but also what’s best for maximizing the long-term value for the asset. Achieving this balance is no easy task.
Many people are confused about the distinction between the real estate asset manager and the property manager. The simplest way to think about it is—the property manager is responsible for overseeing the day-to-day operations of the property, such as collection of rent, payment of expenses, and financial reporting. The Asset Manager, on the other hand, stands in the shoes of the owner and is responsible for creating and implementing the overall strategy for the asset. Property management is just one function the asset manager oversees. Other facets include leasing, financing, capital improvements, and eventual selling of the asset.
Why You Would Hire a 3rd Party Asset Manager
Most dedicated real estate companies have in-house asset managers. But individual investors or smaller firms may not have a full-time in-house asset manager since they don’t have a critical mass of properties to justify the expense. Other reasons to outsource the asset management function include: (1) real estate is not a core business, (2) the property owner, who has been acting as the asset manager, maybe retiring and wants to step away from this function, (3) the owner is from out of the country or state and needs assistance bridging the gap.
Most investors look for real estate asset managers who are experienced. The following is a list of the main duties of this professional:
- Ensuring the portfolio's returns are maximized
- Hiring key personnel including property managers
- Working with leasing agents
- Managing the cash flow from properties within the portfolio
- Negotiating contracts
- Communicating with investors and clients
- Manage development projects
Goals of Real Estate Asset Management
The broad objective of asset management is to maximize property value and investment returns. This means reducing expenditures when possible, finding the most consistent and highest sources of revenue, and mitigating liability and risk, among other things.
In a sense, asset managers are entrepreneurial. Many of the decisions made in real estate asset management, such as negotiations, approvals, and lease analysis, require risks to be assumed and forecasts made. The managers who make the best entrepreneurial decisions with financial capital tend to be rewarded with higher profits and larger portfolios.
Real estate asset managers make important investment decisions, ensure the client's investment doesn't depreciate, and mitigate the client's exposure to risk.
Real estate portfolios may include different types of properties in a variety of regions and markets.
Asset managers in the real estate industry also hire key personnel like property managers, work with leasing agents, communicate with investors, and negotiate contracts.
As your asset management team, our goal is to provide comprehensive and cost-effective asset management services for your commercial real estate portfolio, allowing our valued clients to outsource this critical ownership function.
Our Comprehensive Asset Management Services Include:
- Source, evaluate, and acquire new properties
- Formulate strategic management and leasing plans
- Hire, direct, and evaluate the performance of property management and leasing teams
- Prepare annual business plans and critically review monthly property management and leasing reports
- Keep Ownership apprised of property performance and the condition and trends of regional and local real estate markets
- Monitor upcoming lease expirations and work diligently to retain the existing tenant base
- Work directly with the leasing team to absorb vacant space on a timely basis
- Negotiate leases and property agency agreements
- Evaluate, monitor, and revise property financing strategy, as necessary
- Calculate and track financial performance and initiate periodic distributions to Ownership
- Formulate and implement disposition plans
- Developing a diversified commercial real estate portfolio
When newly formed family offices, capital groups, HNW individuals, or businesses begin to scale real estate acquisitions, they often make the fatal mistake of working with a handful of brokers, and or hiring an internal employee to lead the charge. The challenge here is time, expertise, network, and domain knowledge.
The reality is leveraging our team is a fraction of the cost of hiring an internal employee.
- Our high net worth clients and corporations need anonymity. Therefore we act as the acquisition and asset management, and our clients can maintain privacy.
- Add an experienced team of commercial real estate professionals for less than the cost of finding and hiring the team yourself
- Access to direct commercial real estate investments opportunities through our extensive network.
- Participate in Growth VUE sponsored acquisition and developments.
- Access more capital and joint venture opportunities through our network.
Each relationship offers a unique structure. However, here is a list of the ways we work with you.
Asset Management:
For all of the work described above, our team charges an asset management fee, which usually ranges based on total assets under management. Typically asset management fees are based on NAV (Net Asset value) or equity under management. This is an annual fee that is charged every year.
Dispositions:
When it is time to exit, there is a lot of work that needs to be done to list and market the property. The added work associated with the disposition typically results in a disposition fee paid at the time of sale or refinance to the asset manager.
Legal:
There is a lot of legal work that needs to be done to set up the LLC for investment, manage escrow, and review the loan documents prior to closing. To finance this effort, the asset manager may charge legal/set up fees. Growth Vue Properties has its own general counsel to support clients & investors who may need additional legal services. Otherwise, our team is happy to work with your general counsel.
Deal flow Development:
When Corporations, family offices, and wealthy investors decide to grow their real estate portfolio they generally do not understand how challenging developing a healthy pipeline of investment opportunities can be. Not only is it time-intensive, requiring an extensive network of brokers, family offices, debt and equity brokers, but intensive financial modeling that is not generally found in the house, but it’s also not their primary business therefore it often fails to launch. Our team specializes in sourcing, screening, and modeling real estate investments. Each year we source over $20B of real estate investment opportunities for ourselves and for our clients.
Acquisitions:
Likewise, there is a significant amount of work that goes into finding potential investment properties and performing due diligence on them to make sure they are suitable for investment. Usually, acquisition fees are charged upfront as a flat fee, retainer or as a percentage of the total acquisition cost.
Owners Representation (Entitlement/Development):
In a development project, the asset manager may charge a fee for the costs associated with the entitlement of the vacant land and the work that goes into managing the development project. Depending on the size of the project, it can range from 3% – 5% of the total construction cost.
Sign up now for monthly Webinars, Educational Content, and more.