Asset Management: The Key to Business Scaling
Written by Marisa Marulli and Julia Ribeiro (REMCO Communications)
Reviewed by Lisa Gerard (REMCO founder and principal)
September 13, 2021
The equation for a commercial property’s financial success might sound simple: minimize costs and maximize profits. However, by not allocating enough financial input to an investment, the chances of maximizing its revenue potential may be reduced.
A skilled real estate asset manager will know to identify the optimal balance between a conservative financial input and no input at all. Such a middle ground allows investment yields to thrive in the long term.
For example, if a property owner is having trouble leasing their vacant office suites, an asset manager may identify that cleaning up the landscaping will allow the building and its leasing sign to be seen from the road. While this action may increase costs temporarily, it increases the chances of tenant prospects and income in the long-term.
In addition to finding this optimal balance, an asset manager can be a key identifier of other ways for a property to thrive. Let’s begin by taking a closer look at what real estate asset management is.
What is Real Estate Asset Management?
The goal of asset management is to maximize a property’s or portfolio’s value. Within this specialty, a professional will conduct market analysis to identify growth opportunities as well as risks. This will allow the asset manager to make informed investment decisions for the property or portfolio.
Overseeing cash flow, the asset manager is tasked with great responsibility to implement strategic responses to their research.
Delegating the responsibility of asset management to a professional is most beneficial when an investor is no longer capable of analyzing asset performance due to large-scale growth or limited knowledge. The most successful investors find that delegating is the key to scaling a business and achieving overall success—as it frees up time to invest in high-value or specialized activities.
Business tip: An asset manager is a tax-deductible expense; investors may exempt asset management costs from adjusted gross income, resulting in reduced income taxation.
Asset Management vs Property Management
While an asset manager oversees investment cash flow and typically hires key staff members (such as the property manager), a property manager administers the day-to-day activities of a property, such as operations and vendor coordination.
A Dive into Various Branches of Asset Management
As with many facets of commercial real estate, asset management is a complex field with many sub-services. There are firms that specialize in one sub-service, and there are those that offer integrated solutions.
Listed below are a few key asset management services:
Transaction Management
Transaction management focuses on property sales and purchases. This practice helps identify real estate investment opportunities and evaluates their tax implications.
Operations Management
The operations manager selects key property personnel, such as the property manager (who is responsible for the properties’ daily maintenance), and also manages income, expenses, leasing, repairs, maintenance and capital expenditures.
Software Implementation
As with most industries, commercial real estate has benefitted from software technology. As software improves productivity and reduces costs, certain asset managers offer services to implement various software, customize features and train property owners or managers on their platforms.
Refinancing
Refinancing a property may be a strategic move identified by an asset manager to lower an owner’s monthly payments, seize current favorable interest rates or change loan terms. Refinancing a property is similar to refinancing a house mortgage or a car loan; it is simply taking on a new loan to pay an existing loan.
Asset Management with REMCO
REMCO takes pride in its focus on integrated solutions. In her tenure, REMCO founder and principal, Lisa Gerard, has observed that a thorough solution to one aspect of commercial real estate includes the information and methods from others.
A Real Business Scenario
To exemplify how a comprehensive solution elevates an investor's portfolio performance, suppose a commercial real estate owner wants to take on a cash-out refinance.
A cash-out refinance allows investors to borrow more money than is currently owed. To qualify for a cash-out refinance, an investor should have at least 30% to 40% in property equity. The bank would then give the difference between the new loan and the previous loan in cash to the investor in exchange for decreasing the company's equity. The investor would use the money to not only pay off the previous loan, but also reinvest in property improvements.
It is in the best interest of the property owner to look at this cash-out refinance from multiple perspectives in asset management as well as multiple perspectives in commercial real estate overall. An asset manager may rely on property management expertise to assess necessary property improvements. He or she may also employ investment analysis expertise to perform a financial projection on the property with and without refinancing.
In conclusion, properties and portfolios can greatly benefit from a comprehensive solution that entails a multi-specialty perspective. However, like the optimal balance between conservative financial investment and minimizing costs that an asset manager would identify for a property owner, a skilled asset manager must also maintain a balance between a comprehensive perspective and focusing on the details of the specialty at hand.
Whether one seeks an asset management service or a comprehensive consulting package, REMCO is dedicated to looking at the whole as detailed as we look at the piece.
