Asset Management for Corporate Real Estate: Stable Distributions Through Intense Tenant Management
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BEOS Survey 08: January 2015 Asset Management for Corporate Real Estate: Stable Distributions through Intense Tenant Management INTRODUCTION Asset Management Service modules according to RICS Module Key Activities BEOS Survey is an analytic series that reports quar- Investment strategy, Planning, creating and implementing measures on the portfolio and property investment policy terly on the latest issues in corporate real estate. Its level purpose is to help enhance the transparency of and Acquisition of Pre-acquisition audit, due diligence and acceptance for this asset class. Survey 08 discusses properties organisational coaching Executing, supervising and monitoring the specificities of asset management (AM) in the Financing financial arrangements context of corporate real estate, presenting above Budget, business Conceptualisation, monitoring, and all the findings of a recent empirical survey. plan, controlling analysis Reporting on the property and portfolio Reporting level AM is generally considered a key factor for any type Souring, staging & evaluating relevant Research of asset. In the case of corporate real estate, the market data asset manager's qualification attains an even greater Data and document Aggregating, staging, processing, management and storing, and archiving personal and significance than with other single-use property security property data types because of its mixed use nature and its fre- Quality assurance and quality control quent letting activities that are explained by the Risk management & of risk management processes and compliance risks, as well as of internal & external large number of occupiers. The subsequent sections standards will profile these tasks and specificities, and com- Selecting and con- Selecting, commissioning, controlling pare them to those of other property segments. trolling service and monitoring third-party service providers providers (PM, FM, etc.) Assuming delegable duties of the Company manage- ASSET MANAGEMENT TASKS owner for managed properties (com- ment mercial management) Commercial & technical monitoring “Asset management is the responsible strategic and Property manage- services supplement the property ment operative management of all yield- and risk-relevant management measures on the property, portfolio and company Recognising, appraising and collecting Claims management level, taking into account the entire life cycle of a accounts receivable 1 Aggregating, monitoring, analysing and given property.” Liquidity manage- reporting the inflow and outflow of ment funds The Professional Group Asset Management (PGAM) of Taking over and continuing the current Accounting RICS Deutschland has gathered and defined these accounting Ensuring compliance with the Construction ma- managements tasks in the form of modules. These scheduled deadlines and costs and nagement modules and their key activities are presented be- quality assurance low. Since not every company covers all modules, Property develop- Conceptualisation, organisation, and since a given account rarely requires all of them, ment, refurbishment coordination and monitoring Marketing, organisation, monitoring Letting they form a certain hierarchy in terms of profession- and documentation al significance. The spectrum of deliverables within Preparing, controlling and monitoring Property valuation each module breaks down into core elements and valuations deliverables less essential. The simplified represen- Sales Preparing, facilitating and controlling tation affords only a rough outline of the diversified Lateral relevance on the service options that may be specified within the same management level framework of an asset management agreement. Any Shifting dependencies final catalogue of services is likely to be customised among the levels to meet the specified requirements of the account at Fig. 1: Asset management service modules according to 1 hand. the PGAM of RICS Germany1 © BEOS AG 2015 Survey 08 • January 2015 Page 1 of 8 STRATEGIC APPROACHES IN ASSET diverse floor space needs of companies. Depending MANAGEMENT on the order book balance, a company's premises in a building may have to be expanded or reduced on The strategies adopted in AM are as diverse as its short notice. The tenants of a landlord showing flex- service spectrum. Generally speaking, they tend to ibility in this regard are far less likely to relocate, be adapted to the portfolio / property at hand – re- yet the flexibility comes with increased administra- gardless of whether the AM is handled internally by tive costs to ensure full occupancy of the floor are- in-house staff or externally by third-party service as.4 providers. Either variant has its own benefits, de- pending on the outcome sought. Small portfolios This raises the question of how labour-intensive the tend to be managed in-house. Large, regionally asset management of a given property actually is. spread or complex portfolios, by contrast, tend to be How much floor space, and how many tenants and externally managed, often by different AM providers buildings can an asset manager handle without com- depending, for instance, on asset class or country.2 promising the service quality? Another question pre- senting itself regards the way in which the AM is Next, the investment targets chosen (with or without organised and what strategy it pursues. Options in- AM input) by the property owners need to be defined clude an in-house solution or the outsourcing to a and implemented. These frequently include a cash service provider. Is the AM centrally organised or is it flow target and a longer-term appreciation target, important to integrate local know-how and to be as potentially with exit requirements. Large-scale of- close as possible to the property and its tenants? In fice buildings in Class A cities occupied by a tenant what ways are property management (PM) and facili- with strong credit on long-term leases tend to re- ty management (FM) integrated? There are any num- quire less of an AM effort. Conversely, a housing ber of ways to answer these questions, which require estate with hundreds of tenants is much more costly individual study of the respective asset class, owner- to manage. Elevated churn rates coincide with a ship structure, history and the specificities of loca- higher management effort, e.g. for the purpose of tion and tenant. re-letting and refurbishing vacant premises. Depend- ing on the range of deliverables, it therefore re- Accordingly, the strategic approaches outlined below quires a greater AM effort to ensure that the prede- only represent just a few options among many. Some fined targets are met.3 asset managers are in charge of just one property and one tenant, while others handle portfolios of Contrary to what is commonly assumed, corporate more than 100 properties. If the service performance real estate, much of it representing multi-occupied meets the expectations of the occupier as the end properties, is rarely subject to increased churn rates, client, the question of right or wrong is moot. The if the asset manager is well aware of his tenants' important thing is that the occupier, not the client, needs and able to accommodate their changing floor should be the yardstick for measuring the manage- space needs. The background to this is the often ment quality. small footprint of such rental units, and the highly Portfolio-/Fonds-Management Portfolio-/Fonds-Management Portfolio-/Fonds-Management Asset- Manager A - Z A Z Asset-Management Asset-Management B ... A B C ... Z A B C D E ... Y Z C Property-Management Property-Management Property-Management A B C ... Z A B C D E ... Y Z A B C ... Z Facility-Management Facility-Management Facility-Management A B C ... Z A B C D E ... Y Z A B C ... Z Fig. 2: Various examples for strategic approaches in asset management (source: bulwiengesa, 2014)5 © BEOS AG 2015 Survey 08 • January 2015 Page 2 of 8 PROACTIVE ASSET MANAGEMENT with it the need for detailed analysis to differentiate THROUGHOUT THE LIFE CYCLE OF A each case in terms of service depth, asset class, and PROPERTY the qualities of a given property and location. Even if the general services to be provided and the 48 strategies to be pursued have been defined, an AM approach committed to sustainability for the purpose of value retention and appreciation presupposes a Interviewees proactive approach throughout the life cycle of a given property. To this end, the successive steps need to be repeated in each cycle. A sophisticated reporting system between management levels and Respondents involving direct feedback from the tenants lets asset managers take proactive measures to address an 318 issue before it escalates. While further increasing the AM complexity, this will bolster tenant loyalty to Fig. 4: Participant statistics of AM survey the property. (Source: bulwiengesa, 2014)7 Survey participants had to answer 13 questions, the majority of which sought to quantify the effort in- volved for the individual asset manager. The brief survey is not supposed to provide a comprehensive overview of the market but only to map current mar- ket trends. Office segment topping the list 6,3% 4,2% Office 10,4% Corporate RE Retail 41,7% Residential 16,7% Logistics Fig. 3: Top-down AM tasks during the life cycle of a prop- Other commercial use erty3 types 20,8% Fig. 5: Outcome of question 1: Which is the most fre- BRIEF SURVEY: “THE QUANTITATIVE quently managed property segment? EFFORT OF AN ASSET MANAGER” (Source: bulwiengesa, 2014)7 At first glance, AM may appear to require precious little effort. It is often assumed that AM only sets the The majority of the polled asset managers are hired parameters for the actual work done by PM and FM. to manage office property, with corporate real es- One look at the outlined service modules and the tate representing the second largest property type. extra jobs of an asset manager6 makes it perfectly For the other property types, please see the chart. obvious that the opposite is true. Yet while the The demand for the AM of logistics properties and overview illustrates the depth of service in AM, there other commercial use types is negligible.