Your Portfolio Denominator - Part 2
In our October blog we outlined the process for understanding your 'Portfolio Denominator'. As you know, managing real estate portfolios remains very complicated and now also integrates many aspects of operating, sales, HR, sustainability, and workplace data. Below we have provided additional perspectives along with processes for success in providing portfolio location analytics to the next level.
First you need to understand your Portfolio Denominator, which reflects analytics of ALL of the key real estate metrics for the portfolio.
For Occupiers, this includes standard metrics of SF/FTE, RE costs/FTE, RE Costs/SF, Gross Rev/SF, Gross Re/FTE and the same for Gross Profit and EBITDA. For Sponsors and Owners, this includes basic property information, current and legacy distributions, return on Investor capital, current and legacy valuations, potential defeasance costs, insurance costs and ratios, annual % changes in performance, occupancy, DSCR, LTC and LTV, and CapEx costs for example. These are standard and basic benchmarks that provide an initial understanding of the totals, averages, and variances of locations within the portfolio. Unless you can provide these basic metrics to a client or your investors, you should not be running or managing any portfolios.
The first is to use this understanding to define the real estate, financials, and employee information for specific calendar years.
Part 2 reflects actions in multiple areas. This may seem obvious, and in fact is, however many times this is missed. In order to create comparisons in which to improve, you need to 'frame' or 'freeze' the annual calendar amounts for all of your key metrics and data points for each year. Much like comparing Gross Revenues to previous years on a year over year basis, you need to compare SF/FTE, RE Cost/SF, RE Cost/FTE, RE Cost/EBITDA as simple examples.
Third, you need to begin to see that the correlation of data is both math and art.
During annual portfolio meetings early in my career, when we initially provided the portfolio math and metrics, our clients would ask the 'why?'. What caused the variances, what actions would change or improve those variances, etc.? So standard processes now include reviewing the data to try to make sense of specific real estate or operating reasons why certain outcomes are occurring, and most importantly, what recommendations you can make to resolve those negative variances. This process will also help you understand more deeply why certain locations are successful and some fail, or why some regions or business units have great metrics and other don't. Is it simply efficient use of space and real estate costs, or something more structural on an operational basis. If it is operational, now you need to define how can you provide input while still 'staying in your lane'.
Always fun and never boring.
With change comes discomfort, such as a business unit leader not liking that their numbers are not in the top tier.
Remember the cohesive set of data for this exercise comes from many different 'silos' of data within a firm. HR, Sales, Finance, facility mgmt., real estate, logistics, capital investments, all house key data for your broader analytics. With this collaborative data set, if you set out the framework on the clients' objectives, you can help your client and enable them to be very successful. Without client support to go through this exercise, it can be a waste of time. If this is the case it also demonstrates that you have the wrong client.
Ghost writing or draft an annual strategic plan.
Another real value add deliverable is possibly ghost writing or drafting their annual strategic plan. Identify the recent year achievements, the current portfolio metrics, the next year's goals, and how those goals will be achieved to enable the firm's success, and what capital, if any, is required to contribute to those positive changes. Be prepared for a focus on numbers, metrics, and specific actions with specific results.
After thirty years of global portfolio experience, we continuously see talented real estate directors and managers who hurt themselves by failing to present their departments contributions to the bottom line. If you do the work, what good is it if you can't show the positive changes you have created. Know your baseline, compare future years against the baseline, define strategic actions for specific results, and start to implement. Demonstrate your expertise and value.
With the tools and applications available today, you can integrate all of this data into a single solution. This allows you to enable your business success, make you more money, saves you costs, and make you a hero in your organization.
Real Clear Software's commercial and cloud based real estate management software offers many advantages over excel spreadsheets and standard lease administration programs. RCS integrates portfolio, transaction and document management, project management, data security, performance measurement, data analysis & comparison, real time data access, stakeholder collaboration, CRM, demographics, and generation of various reports. For more information on Real Clear Software, visit https://realclear.software, email firstname.lastname@example.org, or phone (949) 445-6220.