From an Owner & Investor: Metrics That Matter
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Senior Real Estate Investment Advisor, Tim Donahoe, shares his perspective on identifying key areas for metrics and visibility to mitigate risk and enhance investor returns. Take measures to measure! Watch the webinar on-demand: http://be.buildingengines.com/MetricsThatMatter_10.25.11_RegforOn-DemandWebinar.html
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From an Owner & Investor: Metrics That Matter
- 1. From an Owner and Investor: Quantifying operational performance for CRE’s new reality!
- 2. Timothy Donahoe Senior Real Estate Investment Advisor About Timothy: Timothy Donahoe has extensive experience in all facets of investment and development. Tim has been advising high net worth individuals and institutional clients on their real estate investments for 26 years; the last 17 years for Morgan Stanley Smith Barney and the Citigroup Private Bank. Tim’s experience spans equity and debt placement and origination, investment selection and due diligence, deal underwriting and structuring, asset management, workout, and investor relations. Tim has invested nearly $1 billion of equity in identified transactions as well as in focused and diversified funds. His experience and discipline proved invaluable in mitigating risk and enhancing investor returns during the last market cycle.
- 3. Metrics That Matter Quantifying operational performance for CRE’s new reality Key Upcoming Events! November Webinar Energy Management Solutions That Reduce Cost Katherine Fawcett kfawcett@buildingengines.com Marketing & Communications Building Engines
- 4. Metrics That Matter Quantifying operational performance for CRE’s new reality Today’s Webinar Topics • What are some key trends impacting how owners and investors are looking at metrics? • What are some specific operational metrics in areas including tenant management and risk management? • What opportunities should owners and investors managing multi-property portfolios look to take advantage of in managing operational metrics?
- 5. Metrics That Matter Underlying General Trends in the Industry Lost or Change in Shifts in Stagnant Investor Occupancy Values Sentiment Greater focus on property performance
- 6. Metrics That Matter The current climate’s impact on investors Investors are Looking for: • Greater transparency • More detailed property information • More frequent information
- 7. Business Process Re-engineering Metrics That Matter Technology Adoption in Real Estate Watching every detail at every property Investors are watching: • How quickly can units be turned? • Where can revenue be maximized?
- 8. Metrics That Matter Expectations for more information sooner Higher Demand from Investors: • More information • Frequent information Management’s timeframe for reviewing reporting: • ASAP! No more waiting for a quarterly report • Weekly or Monthly performance tracking • Proactive schedule- address issues before the quarter’s end Measure it so you can manage it!
- 9. View into all tenant activities Centralize, automate, and track data…time is your tenants most valuable resource!
- 10. Metrics That Matter Managing Operational Risk Reduced Risk COI Visitor • Greater appeal to Investors Tracking Access and Tenants Emergency • Lower Insurance Premiums Broadcast Emergency Broadcast Life Messaging Safety • Lower Number of Claims Messaging • Fewer Property Disruptions Fire Incident • Higher Tenant Retention Safety Tracking
- 11. Metrics That Matter Managing operations information in a single location Provide Insight to Owners & Investors: How is the property maintained? Is there proactive management? What is the schedule for the property’s long-term capital needs? The Key: Keep it together! Use a single source location for onsite staff and 3rd party vendors to ensure optimal operations
- 12. Metrics That Matter Operational vs. Financial Data Operational Reporting Financial Reporting
- 13. Metrics That Matter Comparison across properties “The amount of information available at one’s fingertips to compare property vs. property, manager vs. manager, is an incredible tool for owners to see who is truly managing the property to its fullest.”
- 14. Metrics That Matter Operational Best Practices Owners & Investors require Best Practices
- 15. Metrics That Matter Final Thoughts “Knowing that the property is being run to the top of its ability and evidencing that in a single source will give everyone comfort in that given property.”
- 16. Timothy Donahoe Senior Real Estate Investment Advisor About Timothy: Timothy Donahoe has extensive experience in all facets of investment and development. Tim has been advising high net worth individuals and institutional clients on their real estate investments for 26 years; the last 17 years for Morgan Stanley Smith Barney and the Citigroup Private Bank. Tim’s experience spans equity and debt placement and origination, investment selection and due diligence, deal underwriting and structuring, asset management, workout, and investor relations. Tim has invested nearly $1 billion of equity in identified transactions as well as in focused and diversified funds. His experience and discipline proved invaluable in mitigating risk and enhancing investor returns during the last market cycle.
- 17. Don’t Miss Out: Additional Resources! Executive Summary: 1 Share with you colleagues Metrics Microsite: 2 Visit www.BuildingEngines.com – select Microsite Featured Content will include Tim Donahoe on the Owner & Investor perspective: • Managing Operational Risk • Impact of Managing Information on Real Estate Investments 3 Register for the Webinar Series! Visit www.BuildingEngines.com
- 18. From an Owner and Investor: Quantifying operational performance for CRE’s new reality!
Notas do Editor
- Katherine: Good afternoon and thank you for joining us today for our Webinar Masters Series. Today’s topic is an investor and owner’s perspective on the operational metrics that matter. My name is Katherine Fawcett, Marketing team member at Building Engines, and we are sponsoring today’s presentation. This Webinar is part of our best practices series, where we present expert content from industry leaders on a variety of important building and facilities operations topics, at no charge to you. In addition to today’s webinar, we have prepared other content on this topic including video vignettes, checklists and articles that we will be sharing with you over the coming days and weeks, so please look for those as follow-up to the webinar.
- Katherine: Our featured speaker today is Tim Donahoe. Tim is a senior real estate investment professional and advisor with extensive experience in all facets of investment and development. Tim has been advising high net worth individuals and institutional clients on their real estate investments for 26 years; the last 17 years for Morgan Stanley Smith Barney and the Citigroup Private Bank. And over his career Tim has invested nearly $1 billion of equity in identified transactions as well as in focused and diversified funds. Tim, thanks so much taking the time to spend with us today, and in addition to what I just shared, what else can you tell us about your background? Tim: It’s my pleasure. Thanks for having me Katherine. I’ve been fortunate to be in the real estate business since the mid-80s so I’ve had the good fortune and not so good fortune of seeing the market go through numerous cycles. And I’ve been on both the debt and equity side as well as ownership side and have always fancied myself, as an investor advocate in looking at transactions be it for high net worth individuals or small institutions as an owner.
- Katherine: Before we begin, I want share a few notes with the audience. Our session today is a one-way Webinar, meaning that you will be able to hear us speak, but we cannot hear you. However, you will be able to write questions in the GoToWebinar “Chat” window on the right hand side of your screen. You can also close the chat pane window to see more of the screen. I will monitor the Chat window to answer any logistical questions you might have. We will open the meeting up to Q&A at the end. We are recording this webinar, and you will receive a copy of the webinar, as well as an mp3 version and transcript for you and your colleagues as part of our follow-up after the webinar.
- Katherine: And with that, let’s get back to today’s topic of the operational metrics that matter for owners and investors. As we prepared the agenda today, we thought some of the questions you may have for Tim include: What are some key trends impacting how owners and investors are looking at metrics? What are some specific operational metrics in areas including tenant management and risk management? What opportunities should owners and investors managing multi-property portfolio look to take advantage of in managing operational metrics and information?
- Katherine: So let’s get started – my first question for you is what do you see as some of the key underlying general trends from an owner and investor perspective? Tim: Well first off, the dramatic change in the environment. Anytime anyone loses as much value in a market or investment as the commercial real estate industry has lost since its 2007 peak, you’ve got a lot more people keeping a keen eye on it. So we’ve had a dramatic change in values; we’ve had a dramatic change in underlying fundamentals where businesses and centers, whether its office, retail, commercial or apartments, there has been dramatic shifts in occupancy and that then changes the metrics as to how property performance, and together with that there has been a dramatic change in investor sentiment in that investors and owners alike need more information because unlike the days of increasing values, we’re not seeing an increase in value because of free capital or because of declining cap rates. So now owners and operators have to make money by minding the store every day.
- Katherine: And what impact is that having on investors? Tim: after the lessons that everyone has learned since the market’s dramatic decline since 2007, everyone we see in the investment community is asking for greater transparency and greater information. For example, I was with a friend who works at a major private equity fund last week and he was telling me that the quarterly reports, which historically have been issued 60-90 days after quarter’s end, now his big investors, and big investors historically were defined as $50 million and above, now investors that are making $10 million commitments on the institutional side he tells me are calling up with great regularity asking about valuations as well as detailed property information. So I think what we’ve learned in this last cycle is people have to be fully transparent and have to have a handle on all of the information attendant to a different property or property in their portfolio.
- Katherine: In your view, what metrics specifically should investors be looking at as they move to this more real-time assessment of operations performance? Tim: in speaking with one of the top ten apartment owners in talking about his portfolio, he was describing to me a situation where they are now evaluating various properties in their portfolio to see how quickly vacant units can be turned. He said if you look at the property manager, the property manager that can turn that unit faster has captured more money for the investment and ultimately for the investor. So they are tracking instead of just occupancy and asking rent and affective rent, how quickly can units be turned, because every day that that particular unit goes without income is lost revenue for all of the owners. It would be as if a store on the street was vacant and no revenue was gained. So they are watching every detail at every property to ensure that they are maximizing revenue. Now you’re getting into the details much sooner than you would verses the end of a quarterly report review when it’s too late at that point. You want to take action as soon as you possibly can, so having access points for all of this information; operational information as well as financial information gives you the ability to manage the property sufficiently.
- Katherine: Do you have a recommended frequency or timeframe for when management should be reviewing reporting around operational performance? Tim: We’re finding today that the expectations are for more information sooner. that comparison to a dated quarterly write up that’s issued 60-90 days after the quarter with a very high level report, we’re now finding investors calling up owners, calling up their managers on a monthly at least basis, if not weekly to track how the major areas of a property are performing and what are the key metrics so that way, we have the ability to proactively manage and address issues verses waiting till the end of the quarter.
- Katherine: What are some of the specific ways you are seeing operational performance managed and reviewed? Tim: Ultimately, you want to ensure that your properties are full to the maximum and the way to ensure that is to ensure that you have tenant or resident satisfaction. It is having the ability to have everything stored in a single location so that way if there is a question about a particular tenant, you can see the full history of that tenant, you can see the full history of the building, so everything is housed in one simple location. I’m aging myself here somewhat, but I was meeting with an office operator the other week and we got talking about the performance of their portfolio for a prospective investor and it reminded me back in the 80’s we were underwriting an office building and when we asked the property manager how the property was performing, went through all the financials, then asked about, “Well how are the tenants? Can I see your tenant complaint log?” And the guy brought out a hard copy binder that looked like it hadn’t been opened in decades, an old ledger that looked to be back from the 50’s and I think it was because that’s how old the property was and it was a handwritten ledger. Whereas the owner that I was with looking for a potential investment had everything electronically filed so we could pull up the entire tenant roster, see what the complaint was or question or query and see not only when it was addressed but who addressed it and what that tenant’s response or reaction was to how quickly the issue was addressed. We have seen a dramatic change thanks to technology in being able to address tenant requests and the demand. But again, not every owner has that so we what we’re seeing is a flight to quality across the spectrum. Tenants are going to properties that are being professionally managed and having access to tools like this, it gives immediate feedback is critical.
- Katherine: Another important area of interest for our audience is managing operational risk. How do you recommend looking at the metrics around operational risk? Tim: It’s a requirement today, whether it’s to attract top tenants or it’s to attract investors, people have to have their operations in order. Risk and compliance are critical today for the full investment community, for the obvious reasons. And clearly after the likes of 9-11, people want to understand where they can go for all of the information attended to a given property. And it’s also important from the concept of the capital markets. Anytime someone is looking to finance a property or bring in investors with someone that’s conducting due diligence on the property, having everything stored in a single location is critical. And in an environment where time is of the essence, especially with lenders and this crazy interest rate environment that we’re living through, knowing that life safety issues much like the tenant log where you can understand how a tenant has felt about a property for it’s life in that property, having all the life safety issues, having any zoning and regulatory issues, having access to information about specific documents to the property, it’s all critical to have that all housed in one location. now having the ability to have it in all one location and on the Internet as backup is critical. But with that said, it’s amazing how many properties are still run as mom & pop operations with physical copies, and only a physical copy at the building, where we are seeing that slowly but sure go by the wayside to the more technology driven single source electronic filing cabinets for all of the issues that tenants with given property.
- Katherine: We’ve heard you and others talk about the importance of a single source for building operations information, why is this so important? Tim: It is critical to ensure that properties are properly maintained and to have the ability to keep tabs on the work that’s being done onsite by onsite staff verses that that is being managed by third party vendors. So you want that single source location to ensure that the building is being properly maintained Likewise to the amount of information that’s required by the various people in the investment community; the lenders, the equity investors is the need for information to be able to source information on the physical plant of the property. And we’re finding that with investors as well who are looking at making investment decisions and wanting to know how a property is maintained. Are they looking at not only operating it as its needed on a daily basis, but are they proactive in managing a property and keeping tabs on the long-term capital needs of a property? It clearly has financial ramifications but it also has this requirement for the onsite staff or third party as far as when major capital improvements will be required at a given asset. So having access to that type of information in a single location is critical and if someone doesn’t, what we’re finding in a marketplace as we’re experiencing these days, people just pass on the properties that don’t have everything neat and tidy in a single location.
- Katherine: What are you seeing as a best practice for managing this single source of operational data in conjunction with financial data?Tim: [Use Tim’s answer from 10/14 Recording #2. Makes this point: That is a very important distinction. The operational data that we’ve been talking about and financial data are unique in their requirements, so as an owner/investor don’t think that you need one system to do both of those jobs for you – in fact it may be confusing and it’s hard to imagine that a single system would excel at both. ]
- Katherine: One of the nice things about those that own and operate multiple buildings, is that provides an opportunity to look at metrics and trends and identify best practices across multiple buildings? How have you seen that done effectively? Tim: The top owners and managers have or are in process of instituting systems to have information available at their fingertips. if I go to the example of this apartment owner who was looking at - - and this is just one example of all of the reams of information that they go through on a regular basis, but he was looking at one example comparing two properties as to how long it took to turn an apartment unit that was recently vacated and when they looked at the property that turned it very quickly and compared that to the property that didn’t, they had the ability to make some changes at the latter property that turned the unit so the quicker the unit was turned the quicker it was made available to the marketplace, the quicker it was leased up, the quicker that that had an impact on the property financials; that if it wasn’t addressed, there would be a substantial lag not only in cash flow but also in value at that property. proactively managing stuff that in the past was taken for granted and having the ability, the amount of information available at one’s fingertips to compare property verses property, manager verses manager is an incredible tool for owners to see who is truly managing the property to it’s fullest.
- Katherine: One of the key objectives of our webinar series, and all of our educational content for that matter, is to share best practices – and what you are talking about sounds like a great way for a company to really get inside best practices from building to building and property to property. Tim: Best practices become a requirement from owners and investors; owners in order to ensure the properties are being properly managed are expecting more of their managers, investors likewise; they’re expecting more of the stewards in charge of their investment capital. They want to track, “What are the best standards?” And it becomes competition almost amongst the property managers in the portfolio to ensure that they are all maintaining their properties to the best of their ability and to the owner’s expectations.
- Katherine: Excellent. Tim we are going to open it up for Q&A with our audience in a moment here, do you have any closing thoughts to share before we do that? Tim: The more information, the better from everyone’s perspective. Knowing that a property is being professionally managed and being able to evidence that with a single source location for all of the information attendant to a building will give tenants comfort. And that’s why we’ve seen a flight to quality in the major markets across the country of key owners and managers because they know that they don’t have to worry about that landlord not fulfilling an obligation for the tenant. Likewise for the lenders. Likewise for the investors. Knowing that the property is being run to the top of its ability in evidencing that in a single source will give everyone comfort in that given property. And that is why we said we are seeing a flight to quality in this marketplace. [Use Tim’s point from Recording #2 on 10/14 – Take 2: an additional point about using these metrics to not only evaluate the investment, but the management companies they choose to work with as partners. It is especially important for mid-market and smaller, regional management companies to adopt a measure everything philosophy.]
- Katherine: Thanks Tim. Before we open it up Q&A, just wanted to thank you for sharing all of your stories and insights with us today. Tim: It’s been my pleasure Katherine. Thanks for having me.
- Katherine: We are going to be opening up for questions for Tim in a minute. You can submit questions via the Chat Panel. While you are preparing and submitting your questions, a few reminders: This webinar has been part of our Webinar Masters Series, and you can register for the entire webinar series on the home page of our web site www.buildingengines.com. We’ll also include a link for you to do so in our follow-up email communications. Tim has had some great information which we have converted to checklists and transcripts which we will make available to you as part of our follow up communications. Look out for our Operational Assessment – which is an online tool you and your team can use to assess your operations in four different categories – we will share a link to this with you via email. We encourage you to take advantage of it and also share it with colleagues within your organization who may find it useful. So with that, we’ll open it up to questions.
- Katherine: We are going to be opening up for questions for Tim in a minute. You can submit questions via the Chat Panel. While you are preparing and submitting your questions, a few reminders: This webinar has been part of our Webinar Masters Series, and you can register for the entire webinar series on the home page of our web site www.buildingengines.com. We’ll also include a link for you to do so in our follow-up email communications. Tim has had some great information which we have converted to checklists and transcripts which we will make available to you as part of our follow up communications. Look out for our Operational Assessment – which is an online tool you and your team can use to assess your operations in four different categories – we will share a link to this with you via email. We encourage you to take advantage of it and also share it with colleagues within your organization who may find it useful. So with that, we’ll open it up to questions.