Can the Industry Keep Up with the Demand for Information as the Economy Stalls? Survey Shows It’s a Struggle.

The economic downturn is greatly impacting the way the commercial real estate industry is operating these days. Some insight into this new mode of operation can be gleaned from a recent survey conducted by Resolve, completed by over 50 representatives of investment management firms, REIT’s, and private equity firms.

Survey results show that demand for information has been growing as the economy has been slowing down, with over 80% of the survey respondents saying the frequency of demands for reports and information is either significantly higher or higher now compared to a year ago.


At the same time, the survey shows that most companies are struggling to provide the needed information and measure many of the key risk parameters in a timely manner. One example is tenant exposure. While the risk of tenants going out of business has risen dramatically in the past year, most companies still measure it only quarterly or even less frequently.

In addition, the survey shows that most real estate investment companies have trouble generating portfolio and fund-level reports, evaluating debt management strategies, and projecting future debt compliance.

70% of the survey respondents consider Loan-to-Value (LTV) and Debt Coverage Service Ratios (DCSR) either highly important or important to their financial and operational decision making. This should hardly come as a surprise as property values and projected income continue to decline. Yet over a third of the respondents indicated it takes them several days or weeks to calculate future DSCR for a portfolio of assets, and almost half of the respondents need that amount of time to calculate future DSCR for their entire fund.

Another example is what-if scenarios that are used to evaluate future decisions, including strategies for managing real estate debt. Only a third of the companies responding to the survey use what-if scenario to evaluate their debt strategies on a monthly or weekly basis, while 41% do it once a quarter and 22% only once a year or less.

While risk management has become a paramount concern to investors and investment managers alike, the survey clearly demonstrates the struggles of the industry to keep up with the growing demand for timely information and the need for proactive, forward-looking risk management capabilities.

As we can see from the survey, most companies still rely on custom-built Excel spreadsheets as the primary tool for measuring risk and running what-if scenarios. Excel is just too cumbersome. It doesn’t allow companies to do their analysis quickly and frequently enough. Companies managing commercial real estate investments in today’s market need to be able to analyze and understand their metrics on a daily basis, not monthly or quarterly. There is an urgent need for better information infrastructure and analysis tools to enable the industry to step up to the required level of operational competence.

The complete survey results are available for download on the Resolve website.