In 2023, the commercial real estate (CRE) industry was impacted by increasing interest rates, climbing cap rates, rising costs of goods, surging insurance costs, and several other factors that have likely altered how you make decisions.
As we continue to feel the headwinds of this market, active preparation for 2024 is crucial for survival. Keeping an eye on trends and market indicators and understanding how they may impact your asset and portfolio performance will be key as you get ready for the new year.
In our recent webinar, 2024 State of CRE: Insights to Help You Survive the Next Market Cycle, we shared five steps CRE asset managers should implement to protect the firm’s portfolio and assets in 2024 and beyond. Read ahead for an overview of the tips and strategies our experts shared.
Action #1: Shore Up the Balance Sheet.
Fortifying your balance sheet can be a pivotal strategy for portfolio success. To “shore up the balance sheet”, CRE asset managers should conduct a review of operational and capital expenses and below-the-line costs. By understanding these expenses in-depth, you can gain insights that help you uncover the balance between Net Operating Income (NOI) and net cash.
An assessment of the current cash reserves can provide financial clarity and help asset managers allocate resources and implement protective measures to shield both existing and future income. By forecasting resource needs over the next 1-3 years – encompassing expenses such as utilities, taxes, and insurance – asset managers can lay the groundwork for a resilient financial strategy that is agile and adaptive in the face of uncertainty.
Action #2: Understand your debt and data.
Understanding the intricacies of debt and using the right data can help CRE asset managers effectively navigate the market. Leveraging advanced asset management technology, like Lobby CRE, managers can conduct a debt analysis that goes beyond surface-level insights. This analytical depth enables a comprehensive understanding of the debt landscape, providing invaluable data-driven insights to inform strategic decision-making.
Asset managers can review debt structures and interest rates for debt and asset optimization and to ensure they’re also aligned with market conditions. This proactive approach allows them to pivot when necessary, ensuring that they are always operating with the best terms and rates. Moreover, with a keen eye on debt and asset optimization, asset managers can explore refinancing options and debt consolidation opportunities. This not only serves to alleviate financial strain but also acts as a proactive measure to improve cash flow.
Action #3: Find ways to centralize operations and drive efficiencies through the business.
Centralizing operations can be an effective strategy to drive back-office efficiencies. One approach is to consolidate teams within a single building, a move aimed at reducing operational expenses while fostering collaboration and communication. This consolidation not only optimizes resources but also enhances the overall cohesion of the team, facilitating better decision-making in the face of market fluctuations.
Firms can unlock hidden revenue streams by repurposing traditionally non-rentable spaces, such as clubhouses. Rather than merely housing typical business operations, these spaces can be transformed into income-generating assets. This innovative strategy not only maximizes the utility of existing properties but also underscores the adaptability required to navigate the demands of the current CRE landscape.
By embracing remote work, asset managers can allow specific roles, such as accounting, to work off-site. This not only caters to the evolving preferences of the workforce but also presents an opportunity to reduce operational costs. To enhance these operational shifts, the implementation of cutting-edge asset management software, such as Lobby CRE, can help eliminate data silos and address operational needs. By centralizing operations and leveraging technology, firms can position themselves at the forefront of efficiency.
Action #4: Communicate quickly and effectively with investors.
Effective investor communication is increasingly important, especially in an industry where transparency builds trust. Investors should be promptly alerted of any portfolio changes, whether positive or negative. This real-time communication not only keeps investors in the loop but also positions asset managers as proactive stewards of their financial interests.
The proactive approach to investor communications extends to providing frequent, detailed investor reports, offering a transparent view of portfolio performance. These reports serve as a proactive measure to alleviate investor concerns. By tackling issues head-on, firms demonstrate resilience and a commitment to navigating challenges with transparency and integrity. Proactive communication mitigates concerns while also establishing a foundation for a strong investor relationship.
Action #5: Model your debt continuously.
Whether it’s seizing on favorable market conditions or optimizing existing debt structures, asset managers can position themselves for financial success. The debt modeling process doesn’t end once you identify new opportunities. Rather, it is an ongoing process. Consistent modeling allows you to be proactive and responsive to the constantly changing commercial real estate market.
To streamline and enhance this continuous modeling process, asset management software proves invaluable. Advanced functionality, such as those provided by asset management software, facilitate the modeling, tracking, and management of debt, equity, and entities. This integration of technology enhances efficiency and equips asset managers with the data-driven insights needed to make informed decisions in the fast-paced and competitive world of CRE.