Asset management, whether it’s real estate or another asset, tries to raise the market value of the asset’s ownership in order to increase its returns. An asset manager is a person who manages assets on behalf of others, making important financial decisions that aid the growth of a client’s portfolio. An asset manager also ensures that the client’s investment does not depreciate in value and that risk exposure is kept to a minimum. This means maintaining a close check on the market, being up to date on research and trends, and staying informed on political, financial, and economic news.
Asset managers can also manage real estate. These specialists follow the same rules as an asset manager in the financial sector. They specialize in maximizing a property’s worth for investment purposes, as opposed to real estate property managers, who oversee the day-to-day operations and physical structure of a property.
Continue reading to discover more about the role asset managers play in the real estate industry now that you’ve grasped the basics of asset management.
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How is Real estate an investment asset?
Real estate is occasionally purchased as an investment strategy by individuals, private firms, corporations, and governments. Real estate can be purchased, improved, and resold for a profit. It can also be partitioned and rented or leased out at other times.
There are several types of real estate that investors can include in their portfolio, such as:
- Homes and condos are examples of residential properties.
- Office buildings and residential complexes are examples of commercial properties.
- Mixed-use properties that serve both commercial and residential occupants
- Storefronts are examples of retail properties.
- Vacation homes that are designed particularly for vacation living
Real estate investing involves problems that do not exist in capital markets. The property is vulnerable to damage, deteriorates with time, and is sometimes more difficult to acquire and sell. Real estate asset management is concerned with reducing risks and fostering beneficial changes.
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What is the Asset management process?
In the real estate market, asset managers typically specialize in specific types of property, locations, or activities. The asset manager’s primary responsibilities include market research, data analysis, and revenue forecasting.
Leases and rental agreements must be written in a way that attracts tenants while also providing flexibility, reducing vacancies, and limiting liability risk. Resources must be wisely distributed; badly managed resources have a negative impact on portfolio value.
The asset manager frequently appoints a property manager. The asset manager focuses on financial matters, whereas the property manager specializes in the property’s operation. This connection is critical in real estate investing, much as a corporation’s board of directors must work closely with its CEO or COO.
What Are Real Estate Asset Management Objectives?
Asset management’s overarching goal is to optimize property value and investment returns. This includes, among other things, minimizing costs wherever feasible, identifying the most consistent and largest sources of revenue, and mitigating responsibility and risk.
Asset managers are, in some ways, entrepreneurs. Many choices in real estate asset management, such as negotiations, approvals, and lease analyses, need the assumption of risks and the creation of predictions.
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What Are The Responsibilities Of A Real Estate Asset Manager?
Most investors want skilled real estate asset, managers. This professional’s primary responsibilities are as follows:
- Making certain that the portfolio’s returns are maximized
- Recruiting critical professionals, such as property managers
- Collaboration with leasing agents
- Managing the cash flow from the portfolio’s properties
- Contract negotiations
- Keeping in touch with investors and clients
And why should you hire an asset manager?
Here are three ways asset managers can improve cash flow in real estate investment:
- Rental revenue may be maximized with the assistance of real estate asset managers
It is critical to maximize rental and recovery income to preserve and generate property cash flows. On the surface, it appears to be a straightforward concept: negotiate a favorable lease. Commercial real estate leases, on the other hand, are complicated agreements with a wide range of complexity and structures that need expert understanding to obtain strong, reliable rental revenue. If effectively implemented, the lease may work to an investor’s advantage by attracting excellent tenants, achieving higher rental rates, and reducing vacancies in the center — all of which contribute to maximizing rental revenue for the asset and improving bottom-line cash flows.
Real estate asset managers can help with the following:
- Leasing – Asset managers find commercial tenants and interview them.
- Lease negotiation – Asset managers assist in the drafting of lease agreements in order to recruit great, credit-worthy tenants and so improve rental revenue stability.
- Lease expirations – By monitoring rent rolls, speaking directly with tenants, and tracking tenant sales, asset managers may predict forthcoming vacancies, allowing landlords to be proactive rather than reactive in replacing a property that a tenant has recently departed. To ensure good cash flow, vacancies must be avoided, thus asset managers assist decrease tenant rollover risk by deliberately staggering lease expirations and negotiating lease extensions.
- Market analysis – Asset managers understand the rental market well, including rental prices, tenant concessions, and vacancy rates at rival properties. All of this information puts the landlord in command when it comes to establishing lease terms at market-benchmark levels.
Also Read: Understand the differences between asset management and wealth management
- Real estate asset managers assist in lowering operational costs
Real estate asset managers seek to reduce spending and owner upkeep for a property in addition to maximizing revenue. For example, shopping for the property’s service providers regularly assures competitive pricing. Furthermore, designing a lease to shift maintenance and capital expense duties to the tenant or renters protects the landlord from yearly operating cost rises and expensive capital repairs.
Furthermore, an asset manager is aware of the operational expenditures that may wreak havoc on an investor’s net operating income (NOI) and cash flow after debt service (CFADS). Real estate taxes, for example, are frequently one of the most significant operational expenditures, and they may have a significant influence on a landlord’s NOI and asset value. Real estate asset managers with experience have the means and ability to properly fight real estate tax hikes, which may result in significant savings for investors.
Real estate asset managers can help with the following:
- Budgeting- Analyzing previous budget-to-actual deviations enables asset managers to better understand which operational expenditures are reducing NOI and how to reduce them.
- Lease negotiation- Asset managers draught leases to minimize an owner’s day-to-day duties and common area upkeep costs.
- Efficient capital allocation – By identifying capital expenditure items, asset managers may optimize cash flows. This can be done by 1) implementing targeted capital enhancements that decrease ongoing repairs or 2) arranging regular maintenance of capital goods to avoid costly replacement.
- Real estate tax appeals- Asset managers will monitor assessment cycles and advise on tax appeals before a property reassessment results in significant real estate tax hikes.
- RFPs for service providers– Managing the request for proposals (RFP) process for service providers provides competitive pricing and lowers costs for essential services.
- Real estate asset managers keep an eye on the financial markets
Real estate asset managers monitor capital markets to determine the best strategy to build the capital stack for a real estate transaction to optimize risk-adjusted returns. Investors must also evaluate interest rate trends, available debt, equity capital, and market transaction volume levels to ensure that their assets are suitably funded to satisfy their investment goals. Monitoring these ever-changing market dynamics can be difficult and time-consuming.
Asset managers usually operate in these areas and do significant market research to better foresee forthcoming real estate cycles by understanding prior real estate trends. Understanding when it is appropriate to refinance current debt to take advantage of reduced interest rates can significantly increase an investor’s cash flow.
Asset managers seek debt money from a range of sources, negotiate advantageous loan terms depending on the investor’s individual needs and the asset’s financial performance, and aid with loan documentation and closure.
Real estate asset managers can help with the following:
- Property-level financial predictions- Asset managers utilize forecasting methods to determine the best time to refinance debt.
- Loan covenants and maturities– Asset managers undertake the scheduled covenant testing needed by commercial real estate lenders, monitor debt maturity schedules, and devise a strategy to optimize returns on assets with near-term debt maturities.
- Sourcing capital – Asset managers have a network that allows them to undertake extensive market searches, identifying competitive financing possibilities and bringing investors the best loan terms possible.
- Efficient closure- To ensure a timely close, asset managers provide hands-on management throughout the mortgage banking process.
Asset managers serve as the owner of the assets in the portfolios they manage, attempting to optimize cash flow and return while minimizing asset value. They develop and carry out business plans to maximize income, reduce operational expenditures, and reduce financing costs, therefore boosting the asset’s cash flow and return.
Aside from the obvious reasons for focusing on NOI and cash flow (potential for higher payouts, property value increase, etc.), there are other reasons why investors should prioritize NOI and cash flow. Excess income or asset appreciation enables investors to reinvest funds and enhance their portfolios.
Real estate investment is complicated; asset managers help investors negotiate these intricacies by providing accretion, stability, and risk reduction as they deploy capital into real estate assets and seek to increase their returns. If you’re thinking of buying a commercial property for investment purposes, Assetmonk’s real estate asset advisors are a great option since we provide the finest investment options in major cities such as Bangalore, Chennai, and Hyderabad. We also assist you with asset management.
