Arizona Business Magazine Jul/Aug 2010
Today’s Fragmented Market Requires Asset Managers Who Know The Lay Of The Land
During turbulent economic environments, many institutions and individual property investors lack the local market knowledge, vendor relationships, licensing, staff, experience or operational knowledge to effectively manage and/or reposition distressed real estate assets. As such, the day-to-day management oversight and short- to midterm turnaround planning has been assigned to local market asset managers.
Role of an asset manager
The necessity of a local market asset manager has proliferated over the years as real estate has gone from individual to institutional ownership, and from the management of a few properties in a single market to large portfolios located in dispersed geographical areas. The focus of an asset manager is on the decisions that impact the property’s financial performance and, ultimately, ownership’s investment returns. An asset manager generally oversees property managers, leasing and investment sales brokers, architects, engineers, contractors, attorneys and other related vendors. Duties of an asset manager include devising and implementing turnaround plans; insurance and real estate tax reviews; negotiating leases and tenant relations; procuring and managing contractors and suppliers; budgeting and contracting for tenant build-outs and capital improvements; financial analysis and reporting; and positioning assets for sale.
Advantages of an asset manager
Having a local market asset manager who provides leadership and guidance to an investment group’s real estate assets is imperative to be able to react to and anticipate market changes and implement solutions when positioning assets for sale. Asset managers have extensive market expertise, know the dealmakers in their respective markets and have the ability to think strategically and execute tactfully. As such, engaging a local market asset manager will yield better investment operating performance, quicker lease-up of vacant space and more timely execution of sale.
Disadvantages of an asset manager
The main disadvantage is that property owners may lose some control to the asset manager. Depending on the investment structure of the ownership entity, property level decision-making would shift from the owner to the local asset manager. Contrary to some, this hierarchical structure streamlines property level decision making and allows asset managers to react quickly to local market dynamics and tenant and buyer needs. Due to the dislocation in the commercial real estate market, national groups have delegated property-level decision making to regional and local market asset managers.
Financial institutions, special servicers, investors, developers and owners of real estate holdings should strongly consider engaging a local market asset manager to reposition their underperforming assets. An asset manager has extensive market expertise, knows the dealmakers in their respective market, and has the ability to think strategically and execute value preservation or enhancement plans.
The real estate market is extremely competitive. In an environment with negative net absorption, declining effective lease rates and expanding cap rates, owners are jockeying over the same tenants and buyers. A local market asset manager will be the difference in reacting to local market changes and maximizing investment returns and/or loan recovery.