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An Asset Manager’s Guide to Resiliency

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Property portfolios large and small have been affected by our current global situation. Depending on where they are or what types of properties they manage, the people who oversee large property portfolios had to cope with a quickly changing set of circumstances as the pandemic closed businesses and governments around the world gave stay at home orders. This meant that asset managers had to figure out what was happening on the ground at each property. What did the shutdown mean for tenants? How would it affect operations and ultimately profit margins? They also had to take calls from investors and partners, all curious about the answers to these questions. And they had to do this all while juggling the complications of a distributed team working from home.

To find out how asset managers were able to cope with this tough situation, Propmodo Editor Franco Faraudo talked to Ron Rossi, VP of Customer Success at RealPage Investment Management. He explained that many of his clients already saw a market correction coming but that almost none of them were ready for how quickly this downturn happened. “Because we had seen so much growth these last ten years investors were being very aggressive with their acquisitions which created a snowball effect when competing for deals,” Ron said. “This downturn, unlike others we have seen, didn’t happen over a protracted period. Investors that had gone through the last downturn knew they didn’t want to be left in the dark so they were quick to call their asset managers—practically all at once.”

Asset managers have the difficult job of sitting in the middle of two interests, the property managers and their investors. For both helping their managers and reporting to their LPs during this crisis, technology helped them understand their portfolios and communicate with stakeholders. Frequent communication during this crisis was one of the ways to increase transparency and build trust. Going forward, we might see this kind of transparency and regular reporting become much more prevalent. “Because of the competitive market, investors knew that they would have limited time to research a deal,” Ron said. “We used to see investors raising new deals who would read the summary, pull up Google Maps, and then proceed with  immediately signing documents. I don’t think we are going to see that anymore. Now, investors are going to want to see the underlying fundamentals of every deal.”

Ron had a birds-eye view of how his clients were able to deal with this adversity. He explained that they were having to understand their portfolios in a new way.  Every property in their portfolios was in a different situation based on its location, class, type, and tenant. Some areas were hit much worse than others, and government shutdowns differed greatly by region. “For large operators, they might not know exactly what country or city each of their properties are located, so they were having to overlay their portfolios with maps of infections to try to understand where they had exposure,” Rossi said. Much like geography, the impact on tenants was quite nuanced. It wasn’t just enough to be able to divide a portfolio by generic use types such as  “retail” or “food and beverage.” For example, restaurants with drive-throughs or retailers with products that could be bought online and delivered with curbside pickup had a distinct advantage.

All of this happened as asset managers themselves had to make the switch to remote work. Teams quickly learned how much resilience that investments in cloud storage and mobile-friendly applications built into their organizations. Some of the managers that have been able to make this shift are considering permanent work from home solutions. This will have lasting effects on how the real estate world does business, both good and bad. Ron thinks that while being able to have your team work from home is a great way to save money, we need to be aware of the tradeoff that having a distributed team can have on your workflow. “Our customers have been able to do their work from home, which is great, but what we have lost a bit is the ability to collaborate. I think we all realize that Zoom calls are not the same as face to face interaction,” Rossi said. While interpersonal interaction has suffered, Ron thinks that there is an upside to it, “seeing the inside of someone’s house or their kids running around in the background has a way of humanizing our business in a way that I don’t think will go away.”

Interestingly, Ron thinks that this pandemic will change the way that portfolios are managed going forward. No one could have predicted the losses that are being incurred by the property industry right now. But now that we are seeing how these losses played out, there will be a push to insulate portfolios for another pandemic or other unforeseen events. As many companies saw their financial projections slashed by this unfortunate turn of events, many asset managers will need to reexamine how they calculate potential risk in their portfolio and adjust their cash reserves accordingly. Rossi told me that this will likely cause many multifamily operators to think more about what types of work their tenants do and what risk factors they have. Also, across all portfolios he thinks we might see a bit more of a conservative approach to managing portfolios by underwriting properties more and carrying larger cash reserves.

Resilience takes a lot of forms when it comes to a property portfolio. It can be something as simple as a generous cash reserve or a shared database. But it can also be the way your team works, how they are able to collaborate, share, and keep each other accountable. It can even be the way that your team gathers and analyzes information. When a financial crisis hits, asset managers become wartime generals. And as every good general knows, you have to keep your army fit, trained, and well equipped in peacetime because once war breaks out, it may already be too late.

Propmodo is a global multimedia effort to explore how emerging technologies affect our built environment.

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