3 Critical Questions Commercial Real Estate Operators Must Ask When Seeking to Grow
Being different is the largest determinant of success.
There are minimal barriers to entry to become a commercial real estate operator. Some startup cash and a smart strategy go a long way.
The lack of barriers creates a crowd of owners and operators, all competing to raise outside capital from a small number of equity sponsors.
This fierce competition makes it a challenge for individual operators to stand out, which is why many fail to secure an investment.
To become successful in raising capital, operators need an imaginative approach to catch the attention of investors and equity sponsors.
Let’s explore the three critical questions every commercial real estate owner or operator should ask to discover their unique value proposition.
#1 – How Do We Differentiate Ourselves to Equity Sources?
“We performed better than anybody else” is NOT the response that will set you apart from your competition as a commercial real estate operator.
When approached by operators, investors look at the people, not just the numbers.
Prospective investors ask a series of questions to assess the competitive advantage of an operator:
Are the owners looking at properties differently? Looking at horizons from an informed perspective? Utilizing different datasets? Employing resident engagement strategies? Leveraging innovative technology?
Investors want to know what distinctive edge your firm has that no one else can duplicate.
If you’re struggling to attract investors, clarify and simplify your story, unique vision, and how you intend to execute your plan.
As opposed to just numbers and alpha, having a clear vision will give investors the confidence to trust and invest in you.
#2 – How Do We Create Enterprise Value?
The value of the assets you manage is not the same as your company’s value as a whole, aka, ‘enterprise value.’
Too often, operators assume the value of the properties they own and manage is the only priority, whereas enterprise value is more important to investors.
With rental growth predicted to decrease and operating costs expected to rise due to COVID-19 compliance regulations, enterprise value has become the leading metric used by equity sources when comparing sponsors.
Yet, too few operators are conscientious about creating a business around owning their real estate. In a recent study by Deloitte, just 48% of the top commercial real estate executives surveyed indicated their firms had an action plan for maintaining operational and financial resilience for the years to come.
There are numerous ways to create enterprise value, from reorganizing your company structure, to systematizing your current data processes, and implementing the latest tech.
As a commercial real estate operator, you must determine which strategies are best suited to your goals. Ensure you include these approaches in future communications with investors to demonstrate your strategic foresight.
#3 – How Do We Notice Change?
Commercial real estate is poised to undergo rapid changes over the next five years, following the impact of COVID-19 on the market.
Soon, only owners and operators who understand technology and leverage its full potential will be cutting ribbons.
While those who fail to acknowledge and embrace the change will flounder, struggling in vain to catch the attention of investors.
In its same survey of commercial real estate owners/operators, developers, brokers, and investors, Deloitte found that 56% of the respondents had digital shortcomings that they only discovered within the past year.
Despite this revelation, “only 45% of [the same] respondents plan to increase their investments in [technologies, such as] cloud, robotic process automation (RPA), artificial intelligence (AI), and digital channels over the next 12 months.”
If you’re an owner or operator, ‘noticing change’ isn’t only about tech. Getting the right people on your team (i.e., those committed to your vision), listening to them, and understanding their situational insights gives you a strategic advantage.
It will also involve building systems that monitor and analyze data, as well as leaving room for qualitative research through conversations with salespeople, brokers, and tenants.
Showing potential investors that you prioritize data and analytics in your operations to detect and preempt disruptive changes, puts you in the best position to secure a capital partner.
Today’s commercial real estate investors are overwhelmed by endless requests for capital by a growing number of owners and operators.
As a commercial real estate stakeholder, you create the best blueprint for success by building a unique brand, creating enterprise value, and becoming data-driven.
Committing to distinguishing yourself from competitors and position your company for successful raises.