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Drive Profit in Buildings: Focus on Cash Flow

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Critical need for granular day-to-day visibility of revenue, expenses and capital allocation is forcing must-have technology integration into CRE operations of all types.

Opportunity and risk have never been so simultaneously prominent. High occupancy and strong tenant industrial properties thrive among highly distressed retail and entertainment properties, while multifamily properties linger with questions about unemployment and government regulations that may limit rights to evict.

A lot has been said about the recent rapid adoption of technology by CRE companies. Adoption has accelerated, not for love of technology, but because of the forced shift to virtual operations. Remote visibility of properties, people, and related analytics requires collaborative and remote-access software, virtual touring and marketing, and rapid reporting mechanisms. These are critical to sustaining operations in response to shelter-at-home conditions.

But the focus of this article is: profitability.

Rule of thumb: Investors profit at the time of purchase. In other words: “buy right,” i.e. right before rents go up or right before the market is ripe for a change-in-use development where significant value can be added. Buying, operating, and disposing effectively all require visibility into submarkets, an in-depth understanding of trends and a level of confidence regarding the future.

Must-have technology helps CRE operators deeply understand market conditions on a granular level - property-to-property, day-to-day and over time.

In times of uncertainty, tracking cash flow day-to-day is essential whether the property is healthy or distressed. And while forecasting is challenged by uncertainty, budgeting and capital planning must still be done. This requires accurate reporting that can set the stage for successful acquisitions, development, marketing and dispositions. Gone are the days when high level quarterly or semi-annual reports are enough to set and execute property and portfolio strategies.

So, operators are turning a focused eye to cash flow: Revenue, OPEX and CAPEX. Now, as the pandemic lingers, lenders and owners are particularly interested in tracking aged receivables and collections over time.

In all of this, there is a technical challenge. The tracking, integration and analytics associated with rolling up financial data, daily, across many market areas and property types and then converting it into usable intelligence made available to geographically diverse team members is not simple. Companies spend months and millions of dollars working on systems that often underperform in relation to expectations and operational requirements. So, technologies that are already positioned to deliver granular visibility day-to-day and over time on every property in a portfolio, fall into the must-have category.

Volatility and rapid change create a need for more reporting to justify decisions. For example, lenders might normally underwrite property values once or twice a year and may now want to remark values for every asset monthly. Technical integration of live property and market data can streamline this process and avoid the time and expense associated with traditional methods of appraisal or general market reports.

As a result, speed and accuracy have become the two most valuable deliverables for technology that can streamline the pathway to answering core questions:

  • What is the current value of our assets?
  • What should we buy, keep, sell?
  • What is the right price and market rents?
  • Which properties are at risk of default, and why?
  • What is the risk score associated with tenant profiles in each property?
  • Which properties have exceeded tolerable loan to value ratios?
  • What expenses are trending above or below historical or industry benchmarks?
  • How much capital shall we allocate to new acquisitions, development, tenant upgrades, marketing, technology, etc.?
  • When will properties hurt by COVID-19 come back into revenue production?

Must-have technology systems help owners and operators answer questions that drive profit in an uncertain future filled with both opportunity and risk.

Kevin Shtofman, COO, NavigatorCRE
Kevin Shtofman is the COO of NavigatorCRE and oversees global enterprise engagement. With over 16 years' experience, Kevin is recognized as one of the leading commercial real estate tech executives in the industry and is a noted speaker, author and blogger within the growing PropTech sector.

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