LPs Seek Greater Visibility Into Their Real Estate Investments

Imagine that your income stream is changing monthly, but you have no visibility into next month’s changes. In fact, you might need to pony up a lot of capital soon, but you don’t know it until the very last minute, and the only way to understand where you stand is through painfully time consuming manual processes that have to be repeated again and again. At the same time, your constituents are counting on you to deliver your budgeted numbers, or at least provide them with any changes to those numbers as soon as possible so they can plan accordingly.

This is not an enviable position to be in. However, for the most part, this is the environment that the Limited Partners such as pension funds and many private equity investors are living in.

As an example, I just got off the phone with a state pension fund that has $2billion in equity invested in real estate. They are suffering from a liquidity crisis. They need to have visibility into their future cash requirements, but can’t. Here’s some of what contributes to their challenge:

• Their consultants are each allocated a portion of the portfolio to work on. This results in silos of information based on separate groups of investments that cannot be easily aggregated.
• Important information such as tenant exposure analysis, occupancy reports, and portfolio-wide lease expiration schedules is hard to come by and outdated for most of the time.
• Their investment partners deliver an investment level cash flow report once a year. This report highlights projected contributions and distributions to the LP. With rapidly changing market conditions, these annual reports become outdated and irrelevant very quickly, leaving the LP in the dark for the remainder of the year.
• The LP receives quarterly and annual reports in pdf format, which makes it virtually impossible to consolidate the information, slice and dice it for analysis purposes, or search across multiple reports.

These challenges result in less informed decision making and difficulty in planning. To change this reality, LP’s like the one I spoke with are actively pursuing new processes and technologies that automate the delivery of information from their General Partners in an electronic format that can be quickly and easily accessed and analyzed on-demand.

Isn’t it time all LP’s moved in this direction? Are these pains common to what others in the industry experience? I’d be curious to find out what you think.