The role of asset management in the world of real estate
The function of asset management, whether for real estate or something else, is to increase market value so that asset owners get a better return on their investment. Real estate asset management is focused around the maximisation of a property’s value for the purposes of investment.
Commercial real estate asset management should not be confused with real estate property management, which focuses more on daily activities related to the physical structure and operation of a property.
Understanding commercial property as an investment asset
Governments, corporations, private companies and individuals all purchase real estate as part of an investment strategy. Real estate property can be purchased, renovated and resold at a profit. On other occasions it can be rented or leased out.
An investment in real estate property has its own set of challenges that do not exist in other capital markets. Most properties face risks of being damaged, deteriorating over the passage of time and have a much more complicated systems by which they are bought and sold.
Property asset management is concerned with the mitigation of these risk factors and the promotion of value adding improvements. Real estate asset management is also responsible for navigating the often complex tax and legal rules that govern investment property.
Not unlike traditional investments in capital markets, an important part of real estate asset management is diversification. Big investors will maintain vast portfolios of varying types of property, stretching across several markets.
Diversification is important when managing the risks associated with asset management. For example, someone would not want all of their property to be located in a coastal town during storm season unless they had a substantial level of insurance coverage.
The management of property portfolios involves specific asset allocation that is informed by professionals with expertise in the maintenance and development of property. Despite this, the vast majority of asset management will occur after an investment portfolio is decided upon.
The operations of real estate asset management
An external asset manager will normally be specialised in specific types of property, in specific regions with specific operations. The broader role of an asset manager is to conduct highly accurate market research, analysis of data and forecasting of revenue.
Rental agreements and leases need to follow a structure that actively works to provide flexibility, attract tenants, reduce vacancies and limits exposure to liabilities. Resources will need to be managed in a strategic fashion as poorly managed resources will have a bad impact on the overall value of the investment portfolio.
In the majority of cases, an asset manager will select a property manager. The asset manager focuses on financial issues while the property manager simply deals with the everyday functioning of the property.
The relationship between property and asset manager is an integral part of real estate investment and can be compared to the relationship found between a board of directors and a company CEO. In order for either to be effective they must conference with the other.
The objectives of real estate asset management
The overall goal of asset management is to employ strategies that maximise the value of property and the return on investment therein. This objective requires that expenditures are reduced wherever possible, risk and liability is mitigated and that the most reliable and highest source of revenue is taken advantage of.
In a manner of speaking, asset manager are very entrepreneurial. Several of the decisions made during real estate asset management, such as approvals, lease analysis and negotiations, will require forecasts that are made with assumed risks.