The New Era of CRE Asset Managers
Of all the changes to the commercial real estate industry over the last four years, could the evolution of asset management be the most significant?
For many CRE companies, the answer is yes, as dramatically shifting industry norms and best practices have required principals to rethink what it means to own and manage CRE assets.
In strategic preparation, the top CRE companies of tomorrow are training a new kind of leader drawn from the asset management segment. This repositioning involves a robust redefinition of the asset manager’s relationship to the core business.
As we explore these changes, we’ll recognize this as a new era in which asset managers are a vital driver of the vision, strategy, tools, and talent that empower commercial real estate success.
The shift from acquisitions to optimized management
CRE investors and owners are in the midst of transitioning from an industry focused on acquisitions to one in which the prevailing mindset is management-oriented.
This is out of necessity, as the new reality today is that commercial real estate acquisitions have fundamentally changed. The market has seen challenges such as reduced credit availability, rising rates, and declining inventory. Still, these, combined with broader societal shifts over the past few years, have undermined the viability of the acquisition-disposition cycle as an organization’s primary driver of alpha.
For many owner-operators, the rapid shift in valuations relative to recent acquisition prices has also extended or temporarily prevented their exit strategy, further necessitating current asset optimization.
However, these circumstances present a unique opportunity for observant CRE leaders to pivot and realign their operational vision with suitable strategies.
The drive for next-level talent
The success of any organization’s response to a new competitive or economic environment depends on having leadership with the right combination of skills, experience, and intuition.
In particular, CRE operators face increasing pressure as debt and equity holders seek more profitable portfolios throughout the entire asset lifecycle. Similarly, trends toward leaner operations have amplified the need for centralized leadership over the asset management function. These demands present an opportunity for asset managers to step into the limelight and become a new type of leader.
CRE companies can now drive growth and generate significant value by relying on their asset managers to enhance the portfolio’s engagement with technology, data, benchmarking, and branding strategies. Accomplishing this goal depends heavily on innovation.
The empowerment of asset managers who possess high potential and expertise will yield a new class of leaders positioned to guide and innovate across the firm’s comprehensive approach to matters involving asset, debt, and equity management.
A new toolkit for portfolio success
Asset managers’ success in portfolio optimization depends on more than raw talent and initiative. Maximizing asset value, potential, and long-term ROI requires a unique portfolio management approach with new technological tools (in contrast to obsolete asset management methods).
Asset management, viewed through the outdated perspective of a cost controller, tends to overemphasize fundamentals such as budget constraints, expense reduction, and occupancy levels. However, asset managers who want to create value will assess those fundamentals in a broader range of data-driven decision-making processes designed to drive growth.
Through data analysis, asset managers can identify powerful connections between the company’s primary OKRs (“Objectives and Key Results”) and the ideal KPI (“Key Performance Indicator”) metrics for measuring and controlling progress. For example, asset managers can leverage tenant engagement, neighborhood trend, and brand engagement metrics to discover and recommend low-cost, high-return improvement projects.
Collaboration and realignment
The new asset management mindset presents a sound approach to new industry challenges, yet it will still be a dramatic paradigm shift for most organizations. Changes may entail reallocating staffing or resources, but CRE leaders focused on effective implementation can utilize best practices for change management to encourage alignment among all stakeholders.
CRE teams who rally around initiatives driven by asset managementCR leadership are empowered toward deeper collaboration on shared strategies and goals. Company leaders who realize the value growth created by reinvesting in their teams will look forward to positive changes and preserving upward momentum.
There will always be uncertainties facing the commercial real estate industry’s future, but insightful decision-makers can mitigate them. The best CRE companies of the next several years will start preparing by prioritizing their asset managers’ development, leadership, and resources today.