Managing for institutional owner on rise - real estate management of commercial buildings owned by institutions - Annual Review & Forecast, Section II - Column

If the real estate mantra of the 70s was location-locationlocation, and the 80s equivalent was appreciation, then in the 90s it's institutional ownership

It's no longer a surprise today to find a building owned by a bank, insurance company, pension fund or publicly-held company, and property managers have had to re-orient their thinking beyond the needs of an individual asset to consider the short and long term needs of the institutional owner.

No longer is it just enough for a manager to be well-versed in the physical plant, leasing vacant space and the annual budget Managers must be proficient in long-range planning, value enhancement and institutional reporting methods.

If you manage for an institution, you must be as comfortable in the boiler room as you are in the board room. And as good at keeping a Class A property in excellent shape as you are at turning around bankrupt buildings.

Property managers reacting to the daily needs of the property must realize the effect of their actions on the property's long term value. For example, when marketing vacant space one should account not only for the prospective tenant's credit-worthiness, but also how that tenant will impact on share services and the building's future tenant mix.

Projecting the operating costs associated with the operation of the property, the potential income of the property, and the year-end result are not enough. The manager must be able to understand the financial goals of the owner, and manage the cash flow effectively in order the return on the investment.

Knowing the financial position of a building at year-end is important, but the institutional owner is just as concerned about the financial position of the investment five to ten years out.

While keeping a tight control on the cost of goods and services remain vital to the successful manager, this is not enough. A manager must also keep an eye on the financial markets.

Excess cash flow must be carefully placed to achieve maximum returns That's why a growing number of professional management companies have added a financial analyst to their staffs just to manage portfolio cash flow.

Uniformity also is a key to managing for institutions. Reports and statements must reflect the "language" of the institution; operating statements must be clear and concise.

Institutional owners have internal controls that require documentation which must be prepared for review by several layers of management, prior to releasing funds, a process that takes up to 30 days--so timely planning is essential.

With the rise of institutional ownership, property managers and management companies have had to make dramatic changes in the services they provide to meet the needs of these new owners. This includes taking responsibility for implementing and financing capital improvement programs; cash management; market analysis for the real estate and capital markets; and short and long term planning.

COPYRIGHT 1994 Hagedorn Publication
COPYRIGHT 2004 Gale Group