Asset Management: Trends for the Future How do you define asset management today?
Asset management encompasses a broad range of activities. It is the ongoing process of creation and maintenance of value over a period of time. The manager attempts to ensure that the investment outperforms the marketplace and makes long range decisions on retention, refinancing, and sale of the investment. The asset manager must also supervise day-to-day capital decisions and long-term leasing strategies for commercial properties.
In essence, the asset manager updates and supervises a strategic business plan for each property and ensures the property manager is effective in day-to-day implementation.
How has asset management evolved, and where do you see it headed in the future?
Asset management will change for two reasons. First, the industry is getting much more sophisticated and will continue to get even more so in the future. For example, real estate unquestionably will remain a business of local markets. If you look at a real estate investment, it is inherently a property that is located in a local market in which it competes. Because of the relative illiquidity of real estate investments and the absolute non-transferability of the asset from a physical perspective, its performance on an individual basis has to take place against competition, the economy, the demographic changes, and the performance standards achieved by others in the local marketplace.
For this reason, property management has always been looked at as a relatively localized business. However, asset management must become and is becoming much more broad based, particularly with institutions. Institutions should look at real estate investments as they would other investments, whether they be stocks, bonds, government securities, and so on.
Investors must also look at portfolio value maximization, what performance indices are relevant for that particular class of assets, and how to compare the performance of that class of assets to others. They should make broader capital investment and sale decisions based upon those results.
Institutions have also become more sophisticated with the development of different methodologies for comparing and tracking performance. They have created standards of performance for classes of assets. As this happens with real estate, we are going to see increased sophistication in the ability to monitor the performance of properties, to compare performance within markets, and to compare the performance of property management companies.
There is a strong desire to achieve excellence in property management as evidenced by above-market property performance. This will create a continually evolving process in which there is more sophistication, better standards of performance assessment, and a great deal of competition among property management companies and asset managers.
What will managers need to do to compete in this market?
There are a number of things we are going to have to do. First, managers must recognize this tendency toward more sophistication. Institutions are now looking at real property as a long-term asset. They are not looking for an annual operating budget, but for a broad-based business plan for positioning of the asset for the future.
It is important to look at how to position that asset to maximize its performance in the marketplace, what competition could occur in the foreseeable future, and what decisions should be made with regard to that asset. You must also study the tenant profile and have a plan for each tenant. This is a customer service business today. How you structure leases and the economics of the property in order to maximize the performance of the asset is essential.
Managers must also look to technology if they want to compete in this market. The major asset managers are developing strong technological capabilities. …