It is 2024 and you are a successful real estate platform managing assets across the beds sector: student, multi-family and single-family rental products.
You have operational management agreements across each asset and things look OK. The managers you have used on numerous assets are in place and the usual performance is being delivered. Rents are in line with what was agreed, and feedback from your operators seems reasonable – no red flags, but you have a lurking feeling things could be better.
Perhaps leasing appears a bit slow for some assets, but others seem to lease up too fast. Are you the same as everyone else or is your asset performing differently; and if so, why? Similarly, monthly financial packs suggest abnormal spend in certain operating cost areas, which have not been a problem previously, but you struggle to get sufficient data or rationale as to why.
There is so much to oversee that gaps are simply the by-product of owning and operating real estate, right? Wrong. When the sector can no longer rely on yield compression and rental growth to underpin annual asset values, you should be asking whether your assets are really performing versus the market, and by what or whose measures.
There is so much to oversee that gaps are simply the by-product of owning real estate, right? Wrong
Most managers do a good job; but this is akin to ‘whack-a-mole’ where problems emerge and are batted away rather than pre-empted and tackled at their root before they emerge, or smartly and deftly converted into opportunities. Gap analysis is where operators often fall down. The surfacelevel management and experience may be standard, but if the standard is templated, where are the opportunities?
Take two fairly identical assets, one with the usual operational property manager and one with an operational oversight and strategy. On asset one, rental pricing is set by the manager, based on previous cycle experience and designed to maximise occupancy. But on asset two, the pricing model is set based on forensic analysis of performance indicators and bespoke data for the actual asset, maximising revenue and core occupancy.
On maintenance, asset one’s manager has a light-touch planned preventative maintenance (PPM) strategy for mechanical, electrical and plumbing systems, but generally maintenance is dealt with reactively. For the second asset, potential liabilities are identified through PPM schedules and in-depth mining of maintenance contracts. Opportunities to be proactive are identified and implemented, tying proactive defence maintenance spend into accretive capital budgets.
On indemnities and liabilities, asset one’s operator has a normal scale of opportunity with caps and carve-outs on liabilities; but with asset two, there are fully tendered operating agreements enabling competitive tension, driving higher liability caps and removing carve-outs.
On service specification, asset one has a standard specification with hidden costs for services that should be included; but asset two has transparent costs for ‘additional’ services highlighted and agreed as part of the contract, with a benchmarked service specification.
Likewise, the standard property management agreement small print for asset one means extra costs with break fees and termination clauses that favour the outgoing manager. However, with asset two, the small print has been examined, and reporting requirements, exit procedures and all other rights and provisions are drafted to protect the owner.
On KPIs, there is a basic entry-level review of service provisions for asset one; whereas asset two has more strategic reviews and performance monitoring across multiple services, which reward outperformance and penalise underperformance transparently.
Last but not least: environmental, social and governance (ESG). Asset one is compliant with basic levels of sustainability and governance; whereas asset two has an ESG strategy that is bespoke, with obligations to supply chain, waste, energy, diversity and inclusion and so on, with both qualitative and quantitative values.
It should be easy to see that asset one is only maintaining value; whereas asset two, through this diligent operator strategy and implementation, is maximising value at each step thanks to a forensic-level analysis that uncovers potential risks, omissions and areas that are not performing, thus identifying value and minimising cost. It is asset two that gives investors competitive advantage in a difficult market.
