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
UPCOMING REALCOMM WEBINARS
REAL ESTATE INFORMATION ANALYTICS – Harnessing the Power of the Data - 2/7/2019
It started with spreadsheets and pivot tables, moved to databases, then to data warehouses, onto analytics and business intelligence. Now, analytics often refers to machine learning and artificial intelligence. In the end it is simply about collecting and maintaining accurate comprehensive data and applying some form of sophisticated analysis to gain insight and make better decisions. Combining internal and external data can provide organizations with a better understanding of individual assets, portfolios and markets. This webinar will gather the industries’ most experienced professionals who will discuss how data disruption and leveraging data will allow you to better position yourself for significant growth. Product options, data strategies, personnel requirements and more will be addressed.
Andrew Weakland is the Director of Systems Development for W. P. Carey, a net-lease REIT focused on providing long-term sale-leaseback and build-to-suit solutions for companies in the U.S. and Northern and Western Europe. Andrew specializes in bringing emerging technologies into the real estate space to drive competitive advantage while maintaining the cohesiveness of the overall enterprise technology footprint.
As the Director of Information Technology at Woolbright Development, Luis Ramos is responsible for the corporate technology strategy, which includes the IT infrastructure and enterprise application platforms. Additionally, he is also responsible for implementing technology solutions toward the company’s existing business processes, and helping create new efficiencies throughout the company's business model. Since his arrival in 2004, his team has been responsible for the constant development of various industry-focused proprietary software applications and tools. These award-winning technologies have fundamentally changed the way commercial real estate has been done at Woolbright.
Prabhu’s career spans over 18 years of product, business, and customer experience focused on enterprise-scale software for IoT-based connected services, sustainable building solutions, and telecom network management. Prior to becoming an entrepreneur, he was the Director of the IoT division of Zoho Corporation. At Zoho, he was responsible for and directly oversaw strategy, innovation, product, marketing and revenue operations of end-to-end telecom and IoT building solutions.