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2020 Vision: Finding Good Investments

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Global institutional investors are expected to allocate $80-$120 billion of capital to real estate over the coming years, according to Hodes Weill & Associates and Cornell University’s Baker Program in Real Estate. The real challenge lies in getting the most from that capital. As 2020 beckons, the time is right to examine how investments will be made next year and beyond and how investors can identify and profitably execute investment opportunities.

So where are the good deals? Probably not in foreclosed homes, which have been assimilated into a single family homes asset class and, in many cases, capitalized in the public market as new REITs. The cap rates for multifamily assets have reached a level that makes construction and redevelopment the only option for a reasonable internal rate of return. And commercial logistics and urban office assets appear to be tapped out.

What should investors with dry powder do: stand pat until the next downturn or stay in the game? How can private equity real estate serve investors’ best interests in this environment?

Data compilation, analysis are key

The answer lies in compiling and analyzing everything that comprises investment opportunities. This includes rent and expense data, loan abstracts, maturing debt by property and owner, asset ratings and sales data as well as valuation tracking and occupancy trends. Digesting the proliferation of data to find optimal asset acquisition, renovation and sales opportunities requires advanced technology capable of processing information from all market sources.

Many real estate advisors are turning to advanced software suites for business development and customer relationship management. Such systems can assimilate all property prospecting, preliminary underwriting and asset management information within a single platform. From that data comes market analysis and reports, including metropolitan statistical area trends that identify macro issues essential to positive results.

This information makes it easy for real estate fund managers to evaluate pipelines and match deals with investors. They can also:

  • Identify gaps between best-performing properties in a sub-region and their target properties

  • Uncover properties with rents and expenses that exceed the comp set

  • Tie capital calls to investment lifecycle data

  • Auto-generate quarterly investor reports

  • Gauge an asset’s impact on the overall allocation of the fund, asset type threshold and investment strategy
Property-level performance drives value

This kind of technology can additionally enhance asset value by driving new efficiency into property-level operations. For example, enabling online payments through a resident or tenant portal can reduce open accounts receivable. Energy management systems can reduce the cost of operating heating, air conditioning and ventilation systems without impacting tenant comfort. Automated construction management keep projects on time and on budget with real-time views of data across multiple capital projects. Coordinating all leasing processes and market intelligence activities can increase revenues with quicker deal execution.

In short, automated compilation of fund, property and tenant information in a single system delivers a competitive edge and drives faster, better-informed investment decisions.

Success in 2020 and beyond might entail doing more with fewer opportunities. That makes it more important than ever to leverage technology capable of synthesizing data. Investment managers are wise to consider adopting tools that help track deals efficiently, identify opportunities quickly, enable confident acquisition, redevelopment and disposition decision - and bring capital from the sidelines to the field, where the real players are.

Brian Sutherland, Industry Principal, Commercial, Yardi
Brian Sutherland is currently Industry Principal for Yardi Elevate, a new asset management suite within the Yardi collection of real estate management solutions. Brian was previously Industry Principal for commercial and multifamily products. Before joining Yardi, he spent 15 years as a founder and president for several start-up companies.

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Yardi® develops and supports industry-leading investment and property management software for all types and sizes of real estate companies. Established in 1984, Yardi is based in Santa Barbara, Calif., and serves clients worldwide. For more information on how Yardi is Energized for Tomorrow, visit yardi.com.