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November 21, 2023 1:29PM

Harnessing the Power of Technology to Improve Investor Reporting

Staff Member Josh Malinoff
Article by
Principal

I recently took part in a panel on the subject of investor reporting at the Information Management Network’s Real Estate CFO & COO Forum (East) in New York. Under the umbrella of this broad and varied theme, we touched on a number of interesting subtopics of interest to real estate professionals looking to harness technology to improve their investor reporting capabilities. 

New technology adoption; environmental, social, and governance (ESG considerations); outsourcing; and AI are just some of the central concerns for professionals in this area today. In this post, I will summarize some of the key points of discussion and the learnings that attendees took away from the panel. Whether you are a funds manager or an owner/operator with investors, there is certain to be valuable information of use to your business. 

Transparency vs. Complexity 

We began by considering the issue of investor transparency and the complexity of investors’ needs, particularly given the rise in complicated investment structures, ESG concerns, and investors’ demands for more and more detailed portfolio information.

It is clear that investors are no longer satisfied with simply receiving quarterly dividend statements. Instead, investors have become more aware of the risks of investing and have begun to put pressure on their investment managers to provide more detailed reporting than ever before. 

Far beyond simple financial data, investors are now interested in operational and granular data regarding the performance of their investments. This requires a careful balancing of transparency and complexity on the part of investment managers, navigating the fine line between providing comprehensive information and maintaining clarity in reporting.

ESG factors are becoming ever more important in the U.S., as they have been in the rest of the world for some time. Investors increasingly wish to be socially conscious and to understand the impact of their investments upon people and the environment, and they are requesting that their investment managers capture this data. 

New York City is leading the country in this regard, becoming the first large city to put forth a law (known as Local Law 97) that requires real estate owners to reduce their carbon output or be subjected to significant—and increasing—fines.

REdirect is excited to be launching an ESG advisory practice this year in order to address this need. 

Tech Innovation 

Technology has developed, and continues to develop, at an astonishing rate. This can make it difficult for investors, investment managers, and other real estate professionals to select, implement, and use the most appropriate technologies for their needs while staying ahead of the curve. 

In our almost 25 years in business, REdirect has watched the evolution of property technology (PropTech). Historically, much of this technology—which has existed for over 50 years—has focused on back-office functions. Investor reporting and investment management solutions, however, are relatively new. We have watched with interest as these tools have come to market and evolved over the past decade. 

Today, the major platforms—Yardi, MRI, RealPage—all have investor reporting capabilities built in. There are also a number of point solution providers focusing exclusively on this area, of which Juniper Square is currently a leading product. Choosing a mature technology from an established vendor will reduce your risk profile.  

It is important to be proactive rather than reactive in adopting technology. We always advise our clients to first gain a deep understanding of their requirements and strategy. Some investment managers operate in a decentralized manner, allowing property managers to use any system they choose, whereas others standardize on a single system and host that platform on behalf of the property managers. 

There are pros and cons to each of these approaches, and different systems will work best for different businesses. Taking the time to understand your current and future business requirements will enable you to make the most appropriate technology choices. 

Once you have chosen a solution, it’s important to set expectations internally regarding what will be involved in the implementation, to resource appropriately for this major project, and to consider change management. Switching from paper, Excel, or legacy systems to a new technological solution is a significant change and learning curve, and staff members may initially resist. Sensitivity, guidance, and clear communication of the benefits will all help your team make the adjustment. 

Fund Administration and Business Process Outsourcing (BPO) 

Many organizations keep their investor reporting processes in-house. However, there are external providers known as fund administrators that can take over this function on your behalf. Outsourcing comes with both benefits and drawbacks, and it requires some planning to implement correctly. 

Outsourcing is also not necessarily an “all or nothing” scenario. You may choose to outsource some functions and keep others in-house. 

Fund accounting and investor reporting are not core processes or responsibilities of investment management businesses. This may mean that these firms do not have the appropriate expertise in-house or that outsourcing can free up their team to focus on their core business functions instead. Outsourcing also removes staffing and staff retention challenges and increases scalability as a business grows. 

Fund administrators work with many different clients and therefore have a unique insight into best practices. They benefit from broad industry knowledge and have their finger on the pulse of the often rapid changes in the real estate reporting space.

On the other hand, there can also be benefits to keeping some functions in-house, particularly those that require contact and communication with your investors. Investor relations—from reaching out to prospective investors to answering questions that arise when your investors receive their reports—are usually best handled internally. 

Customization 

Investor reporting demands can vary greatly depending upon individual investors’ concerns and requirements. It can be challenging to address these concerns and answer the wide array of questions that your investors may have. This is where reporting customization comes into play. 

Though individual investors may have specific questions, it is best for investment managers to put forth some standardized reporting guidelines based upon current understanding of best practices. However, it is also important to be prepared to respond to investor queries and requests as they arise. The key to managing this successfully is to ensure that you have the required data in a centralized and easily accessible place. Clean, normalized, and consistent data is your single-greatest tool in ensuring that you can provide the reporting that your investors require in a timely manner. 

Even if you operate in a decentralized manner and allow your property managers and operators to use their own systems, you must aggregate this information and store it under a centralized system, such as a real estate enterprise resource planning (ERP) platform or data warehouse. This provides a source of data for your investment management solution to easily access as required. There are now many tools on the market and managed services to assist with this data aggregation. 

All the major investment management and property ERP systems on the market include excellent reporting tools and dashboards that are simple and intuitive for even non-experts to use. This software is highly configurable and is becoming ever easier for users to configure directly. 

In addition to the configurable reports that your software solutions provide, you will likely find that there is some need for ad hoc reporting. Tools such as Spreadsheet Server offer greater flexibility, allowing you to easily create reports in Excel by connecting directly to your data sources. 

Budgeting, Forecasting, and AI 

Requirements for budgeting and forecasting have evolved, and continue to evolve, over time. 

Investors and investment managers need to be able to reforecast regularly and in a timely manner. The days of creating a single annual budget and then leaving it alone throughout the year are long gone. You may need to be able to reforecast quarterly or even monthly, given the continually shifting economic environment.

This regular reforecasting means that you can no longer rely on manual processes and the use of Excel. Instead, you will need to have a system designed to assist with budgeting and forecasting. This system will require access to up-to-date data to support the creation of each reforecast. 

The major PropTech platforms, such as Yardi, MRI, and RealPage, all have budgeting and forecasting capabilities built in. There are also dedicated software solutions on the market that handle this function exclusively (Prophix is one example of such a tool). These solutions interface with the various real estate ERP platforms.

Some evaluation and forward planning will be required to determine the best budgeting and forecasting tool for your business’s individual needs. Once your solution is implemented, however, your reforecasting can become highly efficient, taking minutes as opposed to days or weeks. 

Artificial Intelligence 

Inevitably, the rise of artificial intelligence (AI) is playing a crucial role in the changing landscape of how many critical business functions are managed in the real estate space.

Robotic Process Automation (RPA) represents opportunities in investor report generation and distribution as well as in back-office functions such as investor distribution calculations and automated bank reconciliations for your fund accounts. 

Get Support With Choosing, Implementing, and Leveraging Your Technology 

The current real estate landscape is uniquely challenging. Falling property values, rising interest rates, the cost-of-living crisis, and the ongoing effects of the COVID-19 pandemic are all having a major impact on the returns that investors are seeing. 

This also means that there are numerous challenges facing today’s property investment managers as investors’ reporting requirements become ever more exacting. Choosing, implementing, and effectively leveraging the right technologies can make all the difference. 

Here at REdirect, we have spent almost 25 years supporting clients in making the right technology investments and making the most of their real estate technology solutions. If you would like to learn more about anything we have discussed in this article, or start the conversation about how we can support your business in its technology journey, please contact the REdirect Consulting team today. 

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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 …