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
Top GLOBAL INNOVATIONS of 2019 Impacting Commercial and Corporate Real Estate - 12/12/2019
2019 will likely be another year of great innovations for the Commercial and Corporate Real Estate industry. With a multitude of new companies and ideas being funded by an insatiable appetite of investors, the traditional workflows and processes of Real Estate are challenged daily. Add to this a desire by the established marketplace to also innovate and the pressure of change increases. This webinar will bring together some of the industry’s most prolific prognosticators who will discuss and debate the state of innovation in our industry for 2019. For those firms that are leaning into the change brought about by technology this is a perfect opportunity to hear about the leading solutions, case studies and best practices.
Founder of Realcomm Conference Group, an education organization that produces Realcomm, IBcon and CoRE Tech, the world's leading conferences on technology, automated business solutions, intelligent buildings and energy efficiency for the commercial and corporate real estate industry. As CEO, Jim interacts with some of the largest companies globally pertaining to some of the most advanced and progressive next generation real estate projects under development.
Jeff Chulick is the Technology and Innovation Leader for EY Real Estate Services. He leads a global team of professionals focused on the identification, innovation, design and realization of technology solutions that greatly enhance the workplace experience. His areas of focus include digital strategy, smart workplace, IoT, visual communications, workplace management, physical access and audio/visual technology. Jeff has over 20 years of enabling workplace strategies and delivering innovative solutions for EY and external clients across many different industries.
John Dulin is a 30-year global telecom and enterprise executive and has held senior positions in product management, marketing and sales in the areas of fiber optics, wireless and new technology development. Currently with Corning, John is focused on introducing its fiber optic and wireless innovations to the commercial real estate market.
Craig Stevenson is President of AUROS Group, a technology company based in Pittsburgh, PA. He is widely known for his role in establishing Pittsburgh as a leader in "Evidence-based Performance" for the built environment. Evidence-based Performance uses technology to bridge the gap between "hoping" a building is performing as designed to "knowing" a building is meeting its performance goals. He is credentialed in virtually all known building performance standards. As a result, Craig focuses solely on owner's performance requirements for their building(s).
Marc is a pioneer in leading the Intelligent/Smart Buildings and M2M movements pushing the industry forward and has contributed to transforming and changing the Intelligent Buildings and M2M (now IoT) industries. As Chief Marketing and Communications Officer for Lynxspring Marc leads corporate and product marketing, strategy, brand management, public relations and communications that support the company’s strategic and growth initiatives.
As Chief Innovation Officer, Jeff Clark leads the development and delivery of new offerings at RF Connect, properly positioning the company and our clients for the critical trends of technology convergence that define our era in telecommunications. Since joining RF Connect in 2016, he has introduced our software-defined wide area mesh network that provides industry-leading monitoring and LTE transport connectivity for RF Connect’s clients nationwide. Jeff also champions RF Connect’s bold entry into the private LTE segment.