Real estate fund operations and advisory
INSIGHT ARTICLE |
- Fund managers may be sitting on a treasure-trove of data from past transactions that can aid them in sourcing and evaluating new distressed deals. Leveraging that information may require them to rethink their data management and back-office strategies.
- Investors expect far more than just quarterly or monthly reporting. Dashboards and mobile-friendly insights can help ensure investors feel informed and secure.
- Funds need to prepare for a future in which work, meetings and even acquisitions happen remotely. The pandemic has provided an impetus for a long-needed investment in technology.
Middle market funds looking to make distressed acquisitions are likely to find themselves in a competitive market, going up against other, sometimes larger, funds for the same deals. To gain an advantage, firms may be able to use their own historical data to source new deals and evaluate existing deals faster than their competitors.
“Real estate has traditionally been slow to invest in tech, but as they’ve seen some tech-based upstart competitors grow quickly, their eyes have been opened,” said Troy Merkel, a partner and senior real estate analyst at RSM US LLP. “The pandemic is creating an understanding that data has value and that everyone can harness it.”
Funds likely have reams of historical data on asset performance, especially from downturns, which may help them identify patterns and seek out properties that might perform well coming out of the current recession.
Firms don’t have to stop with their own portfolios, either. Often, they also have data on deals they decided not to pursue. By cross-referencing that with asset performance data, they may be able to see which deals they ought to have done, and which deals they were right to take a pass on.
Extracting valuable historical data is an integral part of bringing investment funds into the world of modern technology, Merkel said, but other updates can be just as important. Smaller shops may still be working off of spreadsheets that are localized to a single computer, or performing tedious data entry tasks. Robotic process automation software and cloud-based solutions for the back office let fund managers churn through potential deals more quickly rather than focusing on tedious data entry tasks.
“It’s not easy to find the diamond in the rough in this market,” Merkel said. “If you can speed up your due diligence and your analysts can now review 10 times as many deals as they could before, that will help you deploy capital more effectively and make money for your investors.”
Tech solutions are also important as work is done remotely as a consequence of the pandemic. Even high-stakes deal signings may be happening remotely, increasing the need for tech solutions to keep work flowing.
Moreover, sellers of distressed assets have expectations for their potential acquirers, especially when it comes to cybersecurity. If they are considering an off-market deal, sellers may be looking for their buyers to have discretion, and protecting transaction information from hackers and other malicious entities can keep their data safe.
“Commercial real estate owners know that half the work of construction is setting the foundation exactly right. Getting your data in place serves as the foundation for future growth in your firm,” Merkel said.
Tipping point: By making an investment in back-end technologies, real estate funds can free up their employees to work more effectively, driving higher returns for investors.