Resolve Technology CEO's Blog - Imminent Domain -

Summit Observations: Emerging Themes in Real Estate Investment Management

2010-12-05T10:36:00.006-05:00

A few weeks ago we gathered with our clients for the annual Resolve Client Summit. The Summit was a great opportunity for us to get a condensed intake of the topics that are top of mind for the industry.

As always, it was a powerful gathering with representatives from many of the leading real estate investment firms. At the same time, there were several important emerging themes that I find noteworthy.

The industry is hungry for a better way to manage investments. Being a software company, a great deal of our contact with clients is facilitated by their IT departments. As much as we appreciate our IT contacts and depend on them, I was encouraged by the fact that this year’s Summit was attended by a record number of representatives of the business side. This tells me that the people tasked with managing real estate investment portfolios are increasingly realizing the need for better technology solutions to support their business goals.

Cash and debt are still the two hot buttons. With lower valuations and continued pressure on lease rates and occupancies, fund and portfolio managers are clamoring for better tools to manage liquidity and keep close tabs on debt levels, payment schedules, LTV, DSCR, and the many covenants attached to each loans.

Data visualization is becoming a hot topic. One of the most popular items at the Summit was a hands-on training session on our Executive Dashboards, signaling that data visualization is gaining recognition as a way to help executives make sense of the information available to them.

Companies are looking to standardize across global operations. This year we had our first client representation from Europe, and “going global” was a topic that attracted a good amount of attention. Companies that have implemented investment management solutions in their North American operations are looking to roll them out globally. This will not only allow these companies to reap the benefits of the solutions across their operations but, just as importantly, help them take a big step towards standardizing systems and processes.

Are these also the issues on your mind? What do you think will be the keys to success in the coming years? Please feel free to comment or send me a note with your thoughts.

A Big Step Forward

2010-08-03T10:27:00.010-04:00

Congress’ recent passing of the Financial Reform Bill once again emphasizes the investor’s need and desire for greater transparency, which in turn means greater trust and confidence with their investments.

Most recently, one of our clients took a leap towards greater transparency by providing one of their large investors with direct access to their portfolio information in the Request reporting and business intelligence system.

Instead of the static pdf’s that are commonly used for investor reports, this investor now has the ability to view and analyze any piece of information related to their entire portfolio, a group of properties that they can define (by property type, region, asset manager, etc.), or a single property.

The investor can view rent rolls, tenant exposure and concentrations, A/R reports, lease expiration reports, Statement of Operations, and more. They can also build their own dashboards, manipulate charts on the fly for real-time analysis of the data, and easily drill down from the macro to the micro.

As an example, imagine having read that Circuit City is closing all their stores and immediately being able to know your exposure…that’s powerful.

Needless to say, to make this possible you need a secure environment that limits each investor to only see their portfolio. But once you have such a solution in place, it is rather empowering. Compared to other investment managers who don’t offer as much transparency, I would say that investment managers who offer greater transparency have a clear competitive advantage in retaining clients and raising future capital. What do you think?

Investment Transparency and Investor Confidence

2009-11-05T13:36:00.008-05:00

Soon you won’t have one without the other.

The criticality of an investment manager to have and provide timely, accurate, and easily accessible visibility of the investment both for themselves and their investor intensifies every day. One of our clients recently announced that they are providing an investor with access to Request, thereby giving them unprecedented access to their investment information and performance. The research firm Morgan Keegan recently gave one of our publicly traded clients an “outperform” rating citing their asset and portfolio management system that enables management to spot risk areas and take action before it’s too late as a primary driver for the high rating. And today I just read in in Globest.com that Coventry Real Estate Advisors filed a $500 million lawsuit against DDR. The complaint states that DDR “left Coventry in the dark” when it came to financial, development and leasing reports on the properties. The list of examples is going to continue to grow but the bottom line is that timely, accurate, and easy access to information for all interested is critical to everyone’s livelihood.

LPs Seek Greater Visibility Into Their Real Estate Investments

2009-07-27T09:13:00.007-04:00

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.

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

2009-01-27T09:07:00.011-05:00

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.

Resolve's Client Summit

2008-10-17T12:58:00.003-04:00

September is my favorite month of the year. The weather is beautiful, leaves are turning colorful, and the Red Sox are fighting for a pennant. Most importantly, though, it’s the time our clients gather in town for the Resolve Client Summit.

Taking place at the beautiful Liberty Hotel, this year’s summit was once again an opportunity to get a read on the pulse at some of the leading real estate investment management organizations.

Those who have said “may we live in interesting times” are sure getting their wish come true these days. With the world’s financial markets in turmoil, managing real estate investments has become challenging in ways that were almost unimaginable just a couple of years ago.

The “good old days”, when you could make money in real estate blindfolded and with both hands handcuffed, seem far removed right now. Today’s environment is much less forgiving. Investment managers must be constantly on-guard and ready to take action. The need for visibility, accuracy, proactive thinking, and quick reaction has never been greater. In this tough market, you can no longer tolerate being handcuffed by outdated data, inaccurate calculations, and limited access to information.

At the same time, we must remember that cycles come and go. For the past several years, the focus was on growing investment portfolios. Now that many of us are forced to take a pause, it is an opportunity to catch up on building up the organizational infrastructure required to manage these portfolios in the most effective and responsible manner.

Although the industry is facing some difficult times, I was pleased to see that our solutions are making our clients better equipped to deal with the challenges ahead—with better access to timely and reliable information, better tools to proactively manage risk and returns, and a structured framework for real estate investment management.

RealcommEDGE

2008-08-20T12:19:00.002-04:00

I would like to commend RealcommEDGE on an impressive first issue of what is shaping up to be a most useful resource for every commercial real estate professional. I found Anthony Nazzaro’s article about the economy’s effect on real estate decision making especially telling. One of the things that strike me in my many conversations with real estate companies these days is the willingness to continue and even accelerate investments in technology. Having gone through a number of down cycles, many executives understand that a downturn could actually present an opportunity to gain competitive advantage, and are stepping up to the plate to make their companies more strongly positioned for the eventual upswing.

The Coming of The Data Czar

2008-04-16T22:34:00.001-04:00

Over the last 6 months, we’ve been hosting a number of webinars. As part of the attendee sign up, we ask people to list their job titles. What has become very interesting is that one role rarely seen years ago is beginning to show up with greater frequency, and that is the custodian of the data in the organization. The titles vary, but have included Data Czar, Data Business Manager, Data Quality Manager, and Data Governance Manager.

With information growing exponentially, senior management is recognizing its significance to the operations and performance of the business. Managing data means understanding it, making sure there’s confidence in it, that people have access to it, that the information people are getting matches what they are asking for, and last but not least, making sure that the processes around the movement and the use of the information are streamlined and efficient.

With the role of data custodian quickly becoming mainstream, the industry has formally acknowledged that one of the keys to success, both in decision making and investor reporting, revolves around strong information management.

The Current Economy & Information Demand

2008-03-10T11:36:00.004-04:00

Resolve has recently been hiring a lot of people and the question that always comes up is how the credit markets and real estate current events are affecting demand for our product. Having lived through 2 real estate cycles, I believe my answer is based on experience. And that is, that when people are making money, they're less inclined to ask questions and dig deep. The opposite holds true when investors, especially institutional ones, are losing money. When this happens, people want to know what is going on, and thus, in a worsening economy, the demand for information grows exponentially.

A recent conversation with one of our clients confirms this:

"It’s a bit of a Request renaissance around here...Lots of people asking for reports and data. As the market goes down it causes people to want more data. I am very busy building dashboards."

Related to this topic, we're hosting a webinar March 20th on Managing Your Real Estate Investments in the Face of a Debt Crisis. Outside experts will discuss market conditions, go forward options, and the effects of different strategies on investor returns and compliance. To register, click here.

Portfolio vs. Investment Management

2008-02-29T12:48:00.002-05:00

The term portfolio management is widely used throughout the commercial real estate industry. Investment management, while at the top of portfolio managers’ and CFO’s minds, is not a term you hear or see often.

There is a difference between managing a property or even a portfolio of properties and managing an investment. For the most part, investment management takes place “below the NOI line”. In addition to the performance of the properties, the myriad of factors that affect the investment include capital structure, refinancing options, buy and sell pricing and timing options, reserves and distributions…essentially all decisions that have an effect on profit and investment return.

Until recently, the real estate industry lacked the tools to support investment management. While a few of us would imagine operating our portfolios without a property management system, investment management is still predominantly done in Excel spreadsheets that are error-prone, difficult to manage, and create silos of information.

The reasons investment managers have turned to Excel to begin with is understandable. It is an easy place to throw the data that comes from a number of different sources such as asset management, accounting, and finance. Excel might have been a decent quick fix, but has outgrown the requirements of managing investments in today’s real estate environment.

As Josh Herrenkohl, Senior Manager in Ernst & Young’s Business Risk Services Group recently said:

“Modeling tools that were sufficient in the era of smaller funds are no longer sufficient and that the proliferation of new funds, combined with the prospect of lower returns, creates the need for new competitive advantages.”

Resolve has devoted years of research and development to building solutions that focus solely on the needs of investment management—automating and integrating processes that are commonly done today in separate Excel files. By integrating all investment-related data and providing managers with advanced analytical capabilities, decisions can be made based on up-to-date information and their impact on future returns.

Investment management can finally be performed with the appropriate tools of the trade. The real winners are the Portfolio Manager/ CFO and investors. Allowing senior management to be strategic and proactive, investment returns can best be maximized.

Information Driving ROI

2007-11-21T11:02:00.000-05:00

Since I last posted, lots have been happening. Specifically, the sub prime mess has hit, many financial service firms are still not sure how much they’ve lost, credit markets have tightened, and subsequently real estate prices have been affected. What is apparent is that the need for accurate and timely information is paramount.

This brings me to our annual summit, which we hosted several months ago. The Summit is a great opportunity for our clients to share their company’s information challenges and strategy with each other, both in informal conversations and through formal presentations. The overriding theme was that the amount of information a company collects is expanding at an exponential rate and that companies have to successfully harness it to maintain and improve operating efficiencies, profit margins, and competitive positioning. (scale, grow, and manage risk).

The discussions were very exciting and focused on the many ways in which clients are using Request to improve business processes. Here’s what we heard:

- Increasing the data set that resides in our warehouse;
- Providing third party data contributors with the means to populate Request directly;
- Providing third party information consumers ways of directly accessing Request;
- Streamlining other process solutions to reside within Request so that they are made more efficient and to bring more eyes more often to Request…reinforcing the goal of Request being the single source of the truth and the one place to go to get all information on investment and portfolio level data.

Two specific examples that were focused on reflect the above thinking:

- A client’s 3rd party property managers contribute key information to the owner’s annual asset plans. The property manager’s information is delivered through excel spreadsheets and word documents. Before this information gets keyed into the asset plan, their write ups must be approved by both the asset and portfolio manager. This results in a lot of back and forth communication between all 3 parties. This time consuming and cumbersome process was streamlined by our client creating input forms for the third party property manager to fill out that then go through a work flow/ sign off process and then get automatically integrated into the asset plans. The benefits are many: no reentering of data, the visibility to see at any one point, what’s been approved and at what stage, the introduction of a consistent process throughout all property, asset, and portfolio managers, and overall…time savings.

- Another client has integrated SharePoint into the Request dashboard. The client uses SharePoint for document management and asset specific content. This information can now be accessed from the Request, with the goal of making Request the one stop shop for asset, portfolio, and investment level information.

This is all driven by the value of information. I was talking to a manager of a large open-ended fund, who stated that one specific report that Request provides could save him a million dollars. Now this is what I call ROI!

A Great Article on Fund Infrastructure

2007-08-01T15:56:00.000-04:00

I recently read an article that addresses the booming private equity real estate market. Written by Josh Herrenkohl, Sr. Manager at Ernst & Young, Survival of the fittest funds addresses where the industry's focus has and hasn't been. His discussion of inefficient processes, lack of transparency and technology suggests that the industry could be headed for serious challenges and credibility concerns. Josh does a great job in articulating the risks. Thanks Josh!

Sticking to Your Core - Buy versus Build

2007-07-16T22:04:00.000-04:00

Several times a year, people I know ask me if I ever thought about buying real estate. I always tell them that to do that is a full time job, requiring full time focus, and there are companies out there who do that for a living 100% of their day.

In any business, venturing out of your core competency is risky.

Far too often I see real estate companies make this mistake when it comes to making software decisions, namely, buy versus build decisions. When there is already an existing product available, it makes virtually no sense to build. This is a position I feel extremely strongly about and something that experience has repeatedly taught me.

Speaking from experience:

Everybody, including most software engineers, underestimates what it takes to develop software correctly...it is extremely difficult;

The longer it takes to develop and deploy, the more your business suffers;

Don’t stray from your core expertise, you will have a high risk of failure;

For the most part, software people want to develop software even when it can be purchased;

The first time around for anything is never close to being as best as it can be…your first times are used for learning;

Developing software in general has a high risk of failure;

Documentation is oftentimes not written, but is critical to the ongoing success of any project;

When developing software, even software companies buy as many off-the-shelf components as possible rather than build them. It quickens time to market, reduces the number of employees and areas of expertise needed, and provides continuous improvement in those components;

Competition drives greatness and improvement; a software product company needs to keep on improving to succeed. When you build internally, there is no competition, thus your custom-builds will stagnate and quickly become outdated;

A product that is used by your peers gets influenced by the experience of your peers; a software solution built internally is all alone and doesn’t benefit from anyone else’s intelligence;

Software engineers are in high demand and change jobs often. Do you want more employees or less?

What happens when you’re software engineers leave, does the knowledge go with them? Who retrains the new hires on the program? Even with detailed and clear documentation, challenges remain and the business is affected;

Buying and implementing an existing application is a lot faster and cheaper than building one…Starting from scratch means business requirements take a long time, developing the database schema and structures demands lots of internal high level business resources, and thinking of reports from a blank slate is always harder than configuring existing ones;

Software, like any business, is complex, changing and requires full time focus.

The next time you think about hiring programmers or software consultants, ask yourself a couple of questions “Does this piece of software already exist”; if it does, “Is the software dedicated to real estate”, and then finally, “Does that vendor have satisfied clients”. If the answers are yes, don’t build.

Truth in Advertising

2007-06-26T13:17:00.000-04:00

Here at Resolve Technology, we take great offense to Intuit’s claim on their recent press release that their product Impact is “a new, first-of-a-kind portfolio modeling and analysis tool”. For Intuit, it is new, but it is certainly not first of a kind.

Resolve’s Portfolio Maximizer (RPM) application has been on the market for over a year before Impact arrived;
IRES has acknowledged Resolve’s RPM product as a competitor to existing MRI clients.

While we take pride that our industry leading vision is being followed by other software companies, we don’t like disingenuous claims.

The Revolution in Information Demand

2007-06-25T09:46:00.000-04:00

The real estate industry is in the process of a “demand for information” revolution. Everybody wants it: both internal and external to the organization. The ability to collect it and disseminate is becoming so important that it’s impacting productivity and profitability.

Two key points:

Demand for information is growing exponentially;
Those companies that can deliver information accurately and quickly will have a huge competitive advantage over those who can't. Over time, this advantage will become a bigger factor in achieving success.

Over the last 6 months, several major events have occurred that support and drive this:

We were recently invited to meet with the country’s largest pension fund to discuss ways to streamline their current manual data collection process. They will soon be releasing an RFP to automate this process;
Our last 3 Request clients (our business intelligence solution) plan on extending Request to their investors so that the investors can have direct, immediate, and easy access to information that will allow them to become self-sufficient on accessing their investment information (imagine being in a bake-off for investor capital and competing against a firm that offers direct and dynamic information access – I believe this falls under the category of gaining investor confidence and credibility);
State Street Bank’s Private Edge Group’s clients have been clamoring for more visibility into their real estate holdings. In response to this, State Street recently licensed Request for the purpose of providing their pension fund clients with automated access into and across all of their real estate investments regardless of investment partner. The first pension fund to sign up for this offering is CalSTRS;
At the most recent NCREIF conference in Seattle, 2 firms that help pension funds select which partners to invest in, made separate statements about how the speed in which an investment manager/partner delivers due diligence type information to them is becoming a large factor in rating that investment partner.

The information demanders want their data to be accurate, they want it at their fingertips, and they want to be able to do things with it…like analyze it, view trends, manage risk, and they want to do this over their entire portfolio, eliminating the borders between investments and investment partners.

Currently, collecting and disseminating information is manual, costly, time intensive, and non-scalable. As portfolios get bigger, returns seek their historic norm, real estate asset allocations increase, and investments become more distant (geographically and ownership), information demand will grow and the problem will get worse.

Delivering information in hard copy is inefficient. Posting PDFs on the web for clients to download is almost identical as delivering hard copy. It doesn’t allow the user to do anything with it. Many people think that collecting information through web forms is the solution, but it is not. Web forms mean double entry, and double entry means input errors. On the data receiver’s side, web forms translate into checking the inputs against the hard copy. Web forms also imply that the entity that holds the data does not have an electronic process for using it.

The solution is to pull the information directly out of the source systems that participate in the day to day operations and processes where that information resides. This is the only way that I can think of to keep the data up to date and accurate. Being current and accurate is critical because you will no longer have the luxury of time to create, update, and audit the reports, you will no longer have the time to call around the office to get the information you need. The information has to be in an electronic collectible format to be able to satisfy immediate information demand. Within a company, automated processes have to be in place whereby people use and see the data.

Get ready, because the day will soon be here when your investors will have as much visibility into their portfolio as you do.