Forward Looking Information: A Requirement for Optimizing Performance
Although real estate professionals don’t have a crystal ball for predicting the future, they do have the ability to forecast what lies ahead with a high degree of accuracy and, in turn, improve asset and overall portfolio performance. The key is increasing their focus on “forward-looking information” (FLI).
FLI encompasses a wide range of familiar analytical activities including cash flow forecasting, valuations, hold/sell analysis, scenario modeling, sensitivity analysis and budgeting/reforecasting. Of course, real estate professionals have long engaged in these exercises to some extent. But, to date, most have relied more heavily on backward-looking information to run their businesses.
They have focused and continue to focus their energy and capital on: 1) collecting information about what has already happened, e.g., last year’s financials, last quarter’s leasing activity and last month’s occupancy numbers and; 2) utilizing that data to make decisions about how to manage properties in the months and years ahead.
Moreover, the historical information they use tends to be flawed because most companies unwittingly have inefficient, even incomplete, systems and processes for data management, including but not limited to siloed technology solutions. This creates significant challenges for any organization to develop an accurate view of its real estate holdings – what’s happened in the past as well as what the future may hold.
At the end of the day, though, owners, operators, investment managers and portfolio managers of real estate assets are in the business of performance optimization. This requires them to make informed predictions about future business conditions affecting how investments and assets will perform over time.
In our experience, harnessing FLI significantly helps with these predictions, which in turn, contributes to operational efficiency, leads to markedly improved asset and portfolio performance, lowers risk and enhances investor confidence and interest. A comprehensive FLI initiative can increase real estate returns by 10 basis points while also reducing expenses for portfolio management, asset management and reporting by up to 10 percent. These are compelling results for all stakeholders, especially for investors.
Today’s real estate industry leaders understand this, so they do a few things differently. They put a premium on data management, continually strengthen their analytic capabilities and are rigorous about how FLI work is operationally structured and delivered. They prioritize:
- Collection and access to quality data, based on the conviction that better information leads to shrewder decision-making and stronger business results.
- Continual review and updating of predictive work with detailed variance analysis that examines and refines inputs and processes.
- Use of automation because the complexity and repetition of FLI efforts in real estate require ongoing evaluation and the implementation of emerging technological solutions can improve standardization, speed and efficiency.
- Collaboration and elimination of silos to facilitate teamwork across departments, organizations and geographies as well as adoption of common technologies and data sources.
- Outsourcing services and/or technology platforms to support advanced analytical and forecasting capability so leadership can concentrate on more value-added work.
RealFoundations' believes that a systematic approach – one that assesses weaknesses, identifies opportunities for enhancement and then supports execution – creates the framework for improving an organization's FLI capabilities. A systematic approach considers the following:
- Strategic Direction and Executive Requirements – enterprise strategy and objectives, key forward-looking activities, stakeholder priorities and operating challenges.
- Data – quality, sourcing and governance.
- Process and Controls – FLI activities and processes, level of effort estimate, procedure review and output risk.
- Organizational Alignment – responsibility matrix, resource map and sourcing options.
- Technology Capabilities – core technology solutions, modeling tools and artificial intelligence.
This Week’s Sponsor
RealFoundations is a professional services firm focused on helping companies that develop, own, operate, service, occupy or invest in real estate make smarter, more profitable decisions. From the building itself to the way it’s developed, operated and capitalized, no firm understands the inner workings of the entire real estate ecosystem as well as RealFoundations. We work hard, we tell the truth, and we do what we say. We Make Real Estate Run Better. www.realfoundations.net
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Ruairi is a respected high-performance building design expert. His aim is to elevate the built environment and restore order to the climate for future generations. He specializes in commissioning services for new and existing buildings, building energy assessments, high performance building design, energy modeling/advanced building simulation, and measurement and verification consulting.
Sarah currently serves as a Senior Advisor for the U.S. Department Building Technology Office where she leads commercial zero energy efforts, district-scale solutions, and a pSarah currently serves as a Senior Advisor for the U.S. Department Building Technology Office where she leads commercial zero energy efforts, district-scale solutions, and a portfolio of data infrastructure projects. In previous roles at DOE, Sarah led local government clean energy innovation programs. Sarah has over 15 years of experience in sustainability and energy work. Before DOE, Sarah worked for Baltimore City where she helped establish their Office of Sustainability.
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Akshai Rao, a vice president at Yardi, is responsible for the development of procurement and energy management solutions to ensure high-performing buildings. Prior to Yardi, Akshai spent five years at Bain & Company where he focused on technology and telecom.
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Gary Fescine FMA, RPA is the president of GFC his own consulting firm. He has recently retired from BlackRock where he was global director of facilities, building operations, overseeing 77 sites in 23 countries. He has held a number of related positions including director of facilities at The New York Times and director of operations at the New York Post. Mr. Fescine was the recipient of several energy savings awards including the Energy New York Award in 2017.