Gone are the days when a competent real estate investment manager satisfies all of his or her investors with a single, slick, generic quarterly report. Today, private equity real estate is the wild, wild west of investment: rules and regulations are in constant flux, reporting standards remain elusive, all while investors’ appetite for information is increasing. To survive and thrive as a real estate investment fund manager in this space requires a new level of sophistication.
In 2016, successful investment fund management requires an ability to effectively wield a fund’s data in ways that can satisfy the needs of the players across the fund: whether you need to aggregate data from various property managers, drill all the way down to underlying leases to satisfy a query from a limited partner (LP) or an LP consultant, or satisfy a new requirement from the SEC, reporting demands on a real estate investment manager aren’t for the faint of heart. And the only commonality between these disparate players’ requests is that they all want their different reports fast.
Simply put: general ledger software just won’t cut it.
The only way to ensure that you can stay on top of the field is to implement a system that is nimble enough, quick enough, and accurate enough to earn your LPs’ trust and money.
Determining which real estate management software solution is right for your fund management needs can be a challenge, especially if you don’t understand the options and the requirements. There are considerable pros and cons of the “single stack approach” (such as that utilized by software powerhouse Yardi) as well as those that harness the “best-of-breed” approach (where MRI dominates). How large are your assets under management (AUM)? How many operating partners does your fund require? Is your time most spent fund raising or fund managing? As real estate technology consultants, we posit these questions to you in pursuit of one core determination: how nimble do you really need to be?
Answering these questions can also help you wade your way through another trend in real estate investment: the decision to keep accounting and reporting in-house or to outsource it. Large investment firms are increasingly farming out these tasks to fund administrators, such as the Boston-based State Street, which is administrating nearly $300 billion AUM. Like the debate over single-stack vs. best-of-breed, the benefits and drawbacks to outsourcing this back office work depends on the needs of your firm and your investors, but the same root question remains: how much value do you—or should you—place on functionality?
One day, data agility may no longer have such a high premium for real estate investment managers. ILPA—the Institutional Limited Partners Association—is working to establish standard reporting templates, an industry-wide “ILPA-compliant” report that would satisfy all the LPs in any given fund, similar to the standardization that governs reporting on stocks and mutual funds. But until that day occurs, being nimble and being quick will likely remain key to real estate investment management success.