Leverage Your Portfolio

By Keat Foong, Executive EditorAsset management today is not what it used to be—thanks to technology. Software programs, whether or not they are Web-based, have streamlined reporting processes and thereby provide great time and cost savings. Additionally, there are a myriad of powerful tools in software packages that can perform functions that portfolio managers would never have even dreamed of in the past. “There are so many ways now that you almost have to take a step back to appreciate how much of an impact technology has on our management,” says Lori Reeves, vice president, chief information officer of Forest City Residential Group. Financial reporting, budgeting, planning and performance analysis can all be centrally performed today. Web-based software programs allow portfolio managers to see, at a glance, key performance indicators (KPIs) such as occupancy levels, NOI variances, traffic counts, lease renewal rates or outstanding receivables, whether across portfolios or drilled down to the individual apartment asset level. And whereas in the past, corporate headquarters or regional offices had to wait for monthly or weekly operating reports, today the reports are available in real-time and on-demand to all regional or corporate managers. This allows the apartment companies to respond to adverse conditions in their assets more quickly. “Managers don’t have to send us reports. With the central reporting capabilities, you don’t have to wait for others to send you information. You can go get what you need when you need it,” says Reeves. “You can run financial and operational reports for the entire portfolio, by region, by market, or all the way down to an individual property. Having data and metrics that are fresh allows us to react to things like market and occupancy conditions.” Forest City has spent the last few years implementing the new software programs both at its front offices at the properties, where it uses OneSite and Yardi, and at its back offices at headquarters, where it uses SAP. “There is no longer a need to print reports and carry them to the supervisor,” agrees Kristy Simonette, chief information officer at Camden Property Trust. “There is a lot more self service on the part of managers at the local, regional and corporate levels.” For Simonette, technology makes for even greater corporate transparency and decentralization. “We do not have to get in a car to go to the apartment community to see what’s happening with the leasing traffic,” she says. And giving the site employees better tools enables them to provide better customer service and, ultimately, benefits the customers. Analyzing property performance”There are a myriad of metrics that are available for an asset or portfolio manager to track,” says Eric Forman, CEO of Resolve Technology, a firm that supplies technology to real estate investors. “Each one of these metrics can provide the manager with a visualization of the health of the investment.” The closer monitoring afforded by reporting systems is especially relevant in light of the greater instability and risks in the marketplace today. During tough economic times, “there is increasing need for portfolio managers to clearly articulate how the portfolio is doing because investors have higher demand for details,” notes Zhen Tao, vice president of global product management and development at Intuit Real Estate Solutions. The asset manager can also use software systems to more easily analyze the reasons behind properties’ performance levels, explains Intuit’s Tao. The portfolio manager can examine various dimensions of an apartment asset or portfolio, such as its amenities, location or resident characteristics, and how these may be putting pressure on return, and ultimately, on the asset or portfolio’s valuation. For example, the property may not be doing well because it does not have the preferred amenity. “The same operational strategy does not work in all locations,” Tao notes. If the property is not doing well because it is lacking a swimming pool, for example, the company can then fine tune its strategy by adding a pool to attract more residents. In this way, the technology can help “drive more return out of each individual asset.” Using technology available today, apartment companies can more easily and accurately determine the needed capital improvements. At Equity Residential, for example, headquarters now have access to resident feedback and work orders at specific properties, which enable the company to know whether—or what—capital improvements are needed to improve customer satisfaction. Much time was spent in the past making decisions about how to spend capital improvement dollars, explains David Santee, executive vice president, property operations at Equity Residential. But today, the company can “read, in real time what residents say about the property.” And in the work orders, if corporate headquarters sees there are considerable service requests on appliances, perhaps they need updating. Equity Residential is fully automating its asset and property management systems. The goal is three-fold in its ongoing technological strategies, says Santee: “Consistency in operations, visibility in its transactions and better control over the company’s own destiny.” Debt and equity managers”It is increasingly critical for the portfolio manager to stay on top of the debt and how the debt impacts the risk level of the property,” observes Tao. Software packages supply tools that report on which loans are maturing, and the leverage levels, up to the day or week. Many portfolios also have complex ownership structures, and software programs model these ownership structures and return distributions. For example, says Tao, there are “waterfall” profit distribution engines that can calculate the intricate income distributions to investors—something that is harder to perform using just spreadsheets. At the portfolio level, some apartment companies engage third-party managers to perform the property management functions. Not all property managers use the same software systems. There are solutions that help asset managers aggregate the data from different sources, says Tao. “This allows the clients to be able to consolidate different data from different sources.” Powerful toolsMany other powerful tools in software packages allow asset managers to obtain information they may not have thought of in the past. For example, says Forman, if Microsoft lays off workers in Seattle, the property manager can run a report showing how many residents are employees at Microsoft and therefore what the property’s exposure to the layoffs are. Without the technology, the property manager may have to go through each individual resident file. Some programs may also send alerts when certain metrics fall below or above pre-established thresholds, allowing the asset manager to “manage by exception,” says Forman. The system sends an alert when, for example, occupancy falls below 80 percent. Or the asset manager can be automatically notified when the revenue variant is greater than a predetermined percent. The alert function also saves on labor. Forman compares the process to checking a child’s report card only when grades fall below a B, rather than checking homework every day. In this way, “the technology allows the organization to become scalable,” he notes. Software programs today also allow for asset managers to model out the future performance of an apartment asset or entire portfolios. The actual performance can be compared against pro forma, to see whether the portfolio is on- or off-track. To facilitate the forecasting, asset managers can use software programs to easily input “actuals” from past years into the budget—for example, of lease renewal rates and rent levels—to make projections for future years, notes Tao. The apartment company, he says, can develop a full operational budget for the upcoming fiscal year. Moreover, the programs can facilitate reforecasting at any time during the budget year, when the forecast can be updated with “actuals” that have come in so far, says Tao. The system re
places an old model that used manual processing and spreadsheets, which is error-prone, says Tao.Creating a bridge between the various software packages is Multifamily Information and Transaction Standards (MITS). Some of the newest MITS have been especially valuable to apartment companies for their help in linking the companies’ systems to their Internet Listing Services (ILS). “For example, we all use ILS to market and advertise our properties. Every time pricing, availability or even pictures change, we change this data once in the property management system and all of our ILS listings are updated via the MITS feed,” says Reeves. “Really, every business process has been helped by the new technology.” To comment, email keat.foong@nielsen.com.