By Dave Clifton
Content Strategy Specialist
Many enterprise companies employ a team of professionals to manage their real estate portfolios. It’s because real estate is an asset that companies can optimize and leverage into broader goals. But what is real estate asset management, really? What does it mean to treat real estate like an asset vs. a practical, functional space?
The role of a real estate asset manager is to maximize the value and return on property from an investment standpoint. In the same way companies monitor the performance of employees or departments and their contribution to success, real estate asset managers develop the criteria for real estate return on investment.
What is asset management?
To understand real estate as an asset, it’s best to define what an asset is. The simplest definition of an asset is “anything of value or a resource of value that can be converted into cash.” From a business standpoint, the definition becomes more specific. “Assets are reported on a company’s balance sheet and are bought or created to increase a firm’s value or benefit the firm’s operations.”
Using this definition, often businesses choose to evaluate real estate as an asset. How do facilities contribute to the company’s bottom line? What is the ROI on office space? What is the intrinsic value of facilities vs. their current market valuation? There’s no limit to the number of questions businesses can ask from an asset evaluation standpoint. Each answer matters in the scope of real estate asset management.
Core tenants of real estate asset management
Looking at real estate as an asset means shifting focus to managing it like an asset. The core tenants of asset management are all about optimizing returns, minimizing risk, and reducing expense. For real estate, it’s no different.
- Optimizing revenue: What is the cost of facilities vs. the revenue they generate? Are there ways to increase revenue through reinvestment in facilities? What is the total ROI on facilities over time? These questions and countless others are the focus of revenue-minded asset managers.
- Risk management: What risks are inherent to facilities and how can companies manage them? What is the debt risk of property on the balance sheet? What liability and insurance costs accompany facilities? Managers who identify and mitigate risk improve the ROI of real estate.
- Reducing expenditures: Can the company consolidate facilities and maintain revenue output? Are in-house or contracted maintenance services more cost-efficient? What lease negotiations will reduce monthly/annual costs? Cutting the bottom line is an efficient way to boost the performance of real estate as an asset.
Being mindful of real estate as an asset allows managers to tell a factual story of how a property contributes to the company. Asset management breaks it down into costs and expenditures, revenue opportunities and risks, and other intrinsic values that benefit the company—and it does so in dollars and cents.
Data accumulation and presentation
Quantifying real estate as an asset is only the first part of the job. Real estate asset managers need to take that data and contextualize it for portfolio managers, executives, and other stakeholders, so that they can make high-level decisions about broad real estate strategy. To do this requires access to a real estate forecasting dashboard.
Today’s Enterprise Asset Management (EAM) and Integrated Workplace Management System (IWMS) software provide real-time insights to asset managers who need up-to-date information. Lease tools, cost projections, accrued YTD costs, and countless other variables come together in a property-specific picture of real estate and its contribution to the company’s financial standings (and outlook). Real estate asset managers use this data to generate reports and forecast models as a source of truth for those in the position to make decisions.
As real estate asset managers do this for multiple properties, it paints a clear picture of portfolio performance. From there, portfolio performance can be a deciding factor in top-down decisions—such as the decision to expand to a new facility or the shift to permanent remote work and downsize facilities. It all depends on the tale of the data and the direction of the company.
Real estate asset management comes into focus
Treating real estate as an asset yields tremendous insight into its quantitative values. This is paramount when it comes to forecasting and decision-making surrounding facilities, and it provides even better context for the qualitative benefits of maintaining a physical workspace.
As companies begin to look at their real estate portfolios post-COVID-19, asset-based observations will be among the most important they make. Executives and other high-level decision-makers want to see, in plain numbers, how real estate contributes to success. Real estate asset managers hold the keys to providing this data.
Keep reading: Real Estate Asset Management Certification