August 24, 2017 11:03AM

6 Elements for the Ultimate Investment Management Platform

One of the most thought-provoking sessions we attended at the recent Realcomm conference in San Diego was the Real Estate Investment Management Workshop Breakfast. Participants hailed from the country’s leading investment management and consulting firms, and we were given the task of designing our dream investment management platform.

We broke off into different groups and quickly set to work. Between bites of pastries and fruit salad, each group worked together to develop our top requirements—our ultimate wish list—for the perfect investment management platform. Nothing like a fresh cup of coffee to go along with a brainstorm with 30 of our industry’s best and brightest!

Here are the results of our breakfast workshop and what we’d like to see in our ultimate commercial real estate investment management platform. We would love to talk to you about which of these features is your highest priority.

  1. Fund/Portfolio Performance

It’s all about transparency, customization, and ease-of-analysis when it comes to reviewing fund and portfolio performance. Investors want to see how well their specific investments are doing with the ability to customize the view to reflect what’s important to them. They will want to see how their investments are performing when broken out and on various levels, so giving them drill-down capabilities and the option to see multiple levels through their hierarchy of data is ideal. Attribution analysis is also key, allowing investors to slice and dice their investments by attributes like region or property type. They should be able to select solely the subdata they’re interested in analyzing. For instance, if they’d like to see how office spaces are doing in the Southeast, residential properties in the Northwest, or retail centers in the Northeast—this should be standard functionality.

Data governance and integrity of data are also a hot topic in today’s real estate software landscape. In order to compare and analyze data, it needs to be clean, accurate, and complete. However, as we all know too well, data isn’t standardized; property managers and owners use different systems and configure those systems  in unique ways that work best for them, so we are often left comparing apples to oranges. Ideally, some minimum industry-wide data  standards dictating how the data is captured and recorded would allow for simple and efficient analysis.

The ability to access market data for benchmarking and their own raw data for further analysis are also on the list. Investors don’t just want to see how well they are doing, they want to be able to compare it to the market as a whole. Accessibility to raw data is equally important, allowing investors to perform further analysis in Excel or other spreadsheets as desired.

  1. Property/Fund Accounting

As part of our wish list for our dream platform, we would love to see—well—everything when it comes to property and fund accounting. A feature that offers a  top-to-bottom view of the back-office accounting, from the investor all the way down to the tenant, to ensure all the underlying data is correct would be one major benefit.

Part of the challenge in showing this view is the complex fund structures that can involve multiple levels of consolidation with different consolidation methods at each level. Diamond structures where a company is broken apart and then brought back together add to the level of complexity. The ability to accurately model these structures and then validate that the structures are aggregating and disaggregating the data appropriately as money flows through the levels is a daunting challenge that is probably one of the greatest barriers to implementation of an Investment Accounting system. Many struggle with letting go of their spreadsheets. Nevertheless, it remains the holy grail. Simplifying and automating investment accounting was on everyone’s wish list.

Customizable workflows are of big interest now, too. In the past, real estate software systems were a little bit of a free-for-fall, offering too many different screens and allowing you to go out of order; it could be overwhelming. The workflows we envisioned would allow clients to customize and define the process with defined steps so there’s no confusion for the end user. And, we recognize the importance of customization here because each company’s process is so different.

Additionally, most systems are focused on the actuals, but we’re seeing a big push to use history to forecast the future. Investors want the ability to analyze the past, for example, changes in expenses and incomes, to make a reasonable forecast for the next year or even further out for a multi-year forecast.

Perusing the global market for unique investment opportunities in less common places has it’s benefits, too, but one serious disadvantage is the headache that comes with differing tax and accounting rules between regions. Global compliance for these rules, or a system that can handle the local accounting and tax rules, is sorely needed. Similarly, when it comes to API or “data-in-and-data-out,” every system needs the ability to interface with others to seamlessly move information in and out.

Moreover, investors want to know exactly how the data is being stored. Historically, this information was hard to come by. If you were processing a transaction—let’s say paying an invoice—some clients may want to know where that information is being stored. This is where a data dictionary would come in handy and why it’s made our ultimate wish list. A data dictionary shares this information with you in easy-to-navigate tables and fields so it can be extracted and reported in a snap.

Pre-packaged analytics are also en vogue. Investors want dashboard reports that are prebuilt and configurable. The idea now is that people want predefined reports that are configurable by a non-technical person where no coding is needed—simply drag, drop, and boom, you’re done.

And finally, non-accounting metadata, or information about a property not pertaining to financials , is growing in desire—like if an office building is a high-rise and Class A.

  1. Fund Raising/Capital Management

Capital management is about transparency for potential investors to perform due diligence, , with a  configurable customizable taxonomy, for investors to check in and organize their investments into different categories for evaluation. At the end of the day, it’s all about easy access to secure data for both current and prospective investors.

Today, potential investors want to see an investment manager’s past performance alongside market data; they want to see how investment managers have done historically—and in comparison to the market. At the opposite side of the spectrum, they are also interested in prospective performance with forecasts that will tell them how an investment opportunity is slated to perform and what they can expect to get as a return.

Another important component for potential investors is offering one source for the truth. Having all information in a standardized system and database—rather than heaps of Excel spreadsheets—gives investors confidence that you are organized, systematic, and your data is accurate, compelling their interest and investment.

Once they’re invested, one feature there’s significant interest in is the ability to tie investors’ accounting or position information to their specific contact information for customized performance and capital management updates. In other words, investors may only be interested in position information that pertains to them—they only want to see their investments, their change in capital position, and the transactions that took place during a specific period rather than the fund in general and the aggregated sum of all investors. Or, maybe they only invested in Funds 4 and 5, so they’ll only want updates on those, rather than all seven. When they log in, the idea is that they’ll only see what they want rather than the extraneous details they aren’t concerned with.

  1. Management Agreement Structures/Ownership/Waterfalls

Organizing complicated, one-off management agreements in a single system would be a great improvement for investment managers. The ability to pull up agreements quickly and compare them side-by-side would be infinitely more convenient than hunting for them in Word document formats on a random hard drive, which is the common practice today.

Another cool feature would be the ability to compare covenant agreements on a deal by deal basis, benchmark them against financials and performance metrics, and create triggers for covenant thresholds.

Further, when new funds are established, complicated ownership structures related to tax and legal structures need to be set up—generally, manually. Modern software systems allow clients to systematically set them up; but, it wasn’t until recently that real estate software companies began using pictorial representation to simplify the process further and make it more automated. A feature that also builds cascading rules, allowing money to flow up and down the structure—to and from the investor, the fund, and the properties—as needed, is convenient and necessary.

Finally, there’s the pipedream: the ability to build in a waterfall calculation—and the flexibility to generate its rules. It’s super complicated, but it can be done. Systems are trying to make this feature easier to use to encourage clients to retreat from Excel and stay within the software system. Unfortunately, adopting this is time-consuming and complicated because each investor’s waterfall is different and requires a lengthy set up. But, we dare to dream.

  1. Buy/Sell/Hold Analytics

When it comes to buying, selling, or holding onto investments, there’s a lot at play. Comparing the market data to assets is one important factor (and feature) we’d like to see implemented. For instance, investors would be able to see how a potential acquisition compares to the market—how an office building is performing in Detroit relative to others in the same city—or compare investments within a fund to other similar investments in general—like offices in Atlanta versus offices in Charlotte.

Benchmark comparisons for asset performance isn’t easy to come by, though. Luckily, certain companies are offering these services, and the next step should be integrating them with real estate software. Waypoint, a financial benchmarking and expense management platform for the CRE industry—which REdirect has a new partnership with—offers a commercial market data product that focuses on expenses. In 2016, Waypoint was integrated with MRI and can be integrated with leading property and investment management systems. With actionable analytics now readily available, clients can see and improve property performance against the market. This all plays a part in the fluidity of analysis, making it quick and easy for assessments to be made and conclusions to be drawn. The ease of use of sensitivity analysis and assumptions is also key in our dream investment management platform, letting clients effortlessly evaluate their investment potential, whether to buy, sell, or refinance, and see those decisions impact their returns and cash flow. Features that also show impact to a portfolio (the impact to cash flow, returns, etc.) and the impact of leverage on debt are needed. In fact, Argus, MRI, and Yardi already have existing tools that show impact to portfolios.

And finally, with a growing concern of “who” is in a building is playing a role in investment strategy. Think retail tenants. As such, leasing exposure is now a sought-after element in a good investment management platform.

  1. Investor Experience (Portals/Reports)

The investor experience should be a great one. Thus, key components that make up our ultimate investment management platform include an interface that is “executive-level” easy. Investors aren’t accountants, so the interface should always be simple and easy to navigate. The platform should also be available on the go, so a mobile user interface is a must. Vetted, real-time data housed and refreshed in investor portals would also be an exciting, worry-free, and much appreciated feature. A “new opportunities” component that alerts investors of new opportunities they might be interested in is also a concept helpful to both fund managers and investors.

Making the Dream A Reality

While our dream investment management system isn’t quite in existence yet, our software partners, Yardi, MRI, and RealPage have many of these wish list features in place. While they may not be all currently housed under one roof, there is so much you can do with the software you do have—or can acquire.  The pleasant reality is, the flexibility of these tools allows us to help you craft your own very own dream investment management system. The key is figuring out which wish list features are most important to your clients and your organization and build your platform and processes around them.

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Josh Malinoff
About the Author

Josh Malinoff

Josh joined the REdirect team as a Principal in 2007. He brings over 28 years of real estate technology expertise to REdirect and is often a go-to source for any complex projects.  


Josh spearheaded REdirect’s involvement in Investment Management software, creating a dedicated practice group focusing on the growing …