Family offices and wealthy investors are dedicating a growing portion of their overall investment portfolio to commercial real estate assets. But commercial real estate assets require a specialized skill set and expertise that are quite different from those of investing in the capital markets. As real estate investment portfolios grow, some investors don’t realize the benefits of engaging a 3rd party asset manager nor do they know what an asset manager really does.This post will discuss what real estate asset management entails, why investors should outsource the asset management function (as opposed to doing it themselves or having property managers assume greater roles), the difference between asset management and property management, and other aspects of asset management which investors should be aware of.
What an Asset Manager Does
Broadly conceived, the primary goal of the asset manager is to maximize the value of the asset for the investor. To that end, the asset manager oversees not only property management and leasing, but also financing, capital improvement programs, and the eventual disposition of the asset.
Some of the other duties of the Asset Manager include:
- Developing Operating and Capital Expenditure Budgets
- Negotiating Leases and Third Party Contracts
- Managing Cash Flow and Monthly Owner Distributions
- Providing Acquisition Due Diligence Consulting for new properties
Could owners handle all of these responsibilities themselves? Technically yes, but asset management can be time consuming and it requires many years of experience to master. That’s why a dedicated 3rd party asset manager, who does this full-time, is a good option for someone who doesn’t have extensive experience in the industry. For example, leasing of a large commercial asset can be a significant undertaking. An experienced asset manager will negotiate both letters of Intent with brokers and lease documents with attorneys. A good asset manager will also be able to carefully balance not only what’s best for getting maximum short-term revenue for the property, but also what’s best for maximizing the long-term value for the asset. Achieving this balance is no easy task.
Asset vs. Property Management
Many people are confused about the distinction between the real estate asset manager and the property manager. The simplest way to think about it is—the property manager is responsible for overseeing the day to day operations of the property, such as collection of rent, payment of expenses, and financial reporting. The Asset Manager, on the other hand, stands in the shoes of the owner and is responsible for creating and implementing the overall strategy for the asset. Property management is just one function the asset manager oversees. Other facets include leasing, financing, capital improvements, and eventual selling of the asset.
Why You Would Hire a 3rd Party Asset Manager
Most dedicated real estate companies have in-house asset managers. But individual investors or smaller firms may not have a full-time in-house asset manager since they don’t have a critical mass of properties to justify the expense. Other reasons to outsource the asset management function include: (1) real estate is not a core business, (2) the property owner, who has been acting as the asset manager, may be retiring and wants to step away from this function, (3) the owner is from out of the country and needs assistance bridging the gap between say China and the US.
A Wealth of Experience
As an experienced investment advisor for family offices and high net worth foreign and domestic investors, RMC Realty Advisors is involved in all phases of the product life cycle, from acquisition to disposition. Our goal is to provide comprehensive and cost effective asset management services for investors of commercial real estate, allowing our valued clients to outsource this critical ownership function.
Our Comprehensive Asset Management Services Include:
- Source, evaluate, and acquire new properties
- Formulate strategic management and leasing plans
- Hire, direct, and evaluate the performance of property management and leasing teams
- Prepare annual business plans and critically review monthly property management and leasing reports
- Keep Ownership apprised of property performance and the condition and trends of regional and local real estate markets
- Monitor upcoming lease expirations and work diligently to retain existing tenant base
- Work directly with leasing team to absorb vacant space on a timely basis
- Negotiate leases and property agency agreements
- Evaluate, monitor, and revise property financing strategy, as necessary
- Calculate and track financial performance and initiate periodic distributions to Ownership
- Formulate and implement disposition plans
Receive a complimentary review and analysis of your current real estate portfolio, which will allow you to step away from the day to day management and focus on your core business or other interests. Contact us today to get started!