REdirect is proud to offer support with Investment Management to an array of clients across the real estate industry using two key tools: Yardi and MRI, each of which offers unique and impressive functionalities. We are constantly striving to do more with these two platforms and exploring the best ways to use them for more effective real estate Investment Management.
In today’s post, we will take a close look at the Investment Management capabilities of Yardi and MRI as well as some of the solutions that REdirect is currently working on with these two platforms.
An Overview of Investment Management
REdirect has been offering property management support services to our clients for 24 years. In recent years, we have expanded into also offering support with Investment Management, debt management, and asset management through tools such as Yardi and MRI.
However, to fully understand the life cycle of real estate, it is necessary to also understand capital markets and underwriting, acquisition development, investor distributions, and disposition of assets at the end of their lifecycle. All of these functions come under the umbrella of investment accounting or Investment Management.
Automating the Investment Lifecycle
In supporting our various clients over the years, we have noticed that acquisition development is often handled by a broker group, along with capital markets and underwriting (which can be performed using Argus). Then, however, the acquisition development tracking may be managed using either a CRM system or Excel, and we see little automation in this process, making it difficult for these functions to flow seamlessly into construction and property management and ultimately into Investment Management and reporting.
Investor reporting has also typically been handled manually in the past, with multiple spreadsheets being used to calculate promotes and waterfalls. Dispositions and investor distributions have historically been handled with standard accounts payable processes, offering little in the way of connections between payable amounts to asset values and calculations.
As a result, we aim to prioritize automation of the investment life cycle so that information can flow smoothly, risks can be identified and mitigated, and avoidable human errors can be eliminated. Automation also allows for investor reporting to be enhanced by pulling details directly from the property management system into those reports, offering more sophisticated real-time information about each asset’s performance.
Our investment systems also have the ability to support very diverse structures, allowing for numerous complicated processes to be handled through automations and integrations between modules and various software.
A Note on Investment Structures
Investment structures can be complex and have multiple layers. In short, an investment structure refers to how investments are legally owned, which may involve a number of different legal entities including the asset (the property or land itself), operating entities, joint ventures (JVs), holding companies, REITs, funds, and individual partners or investors.
Both Yardi and MRI allow you to create visualizations of investment structures so that users can clearly see how the investments are owned, how funds flow through the various levels of the structure, and how the various entities relate to one another.
The investment structure will look different for each client, but a firm understanding of this is essential before proceeding with the implementation of new Investment Management systems and processes.
Yardi’s Investment Management Offering
Yardi offers a number of modules to support you with your Investment Management needs. Yardi Investment Accounting (formerly Investment Management) allows for automated financials and performance management and is connected to property management data. It offers diverse consolidation and elimination capabilities, allowing you to handle full consolidation, equity pickup, minority interest and consolidation eliminations, and more. Yardi Investment Accounting also allows for diverse waterfall calculations and promote accruals and distributions.
Yardi Investment Accounting offers excellent reporting capabilities around these consolidations, allowing you to see the primary data in the entity that you are consolidating to and separate out the consolidated and elimination entries, seeing at a glance where everything came from. Yardi also offers the ability to show consolidated capital activity posting, which means that you can post your journal entries for a capital transaction. For example, if you are performing a distribution for your owners, the money would pass through each legal entity from the property to the holding company to the fund, then to the limited partners and general partner, before finally splitting to each individual investor. In the past, this would have required numerous transactions and journal entries. However, using Yardi’s calculators and capital batch processing, we have created systems that allow clients to set up accounting rules to turn this laborious process into a simple and automated one-button distribution.
Yardi offers three additional modules that work alongside Investment Accounting. Investment Manager is a portal for investors that can improve communications with current and prospective investors. It has a subscription process that can track investor activities and provide robust correspondence, as well as some limited investment accounting capabilities.
Debt Manager can automate accounting functions around a debt and handle debt as both a liability and an asset, which is tremendously useful for development properties. It allows you to automate payments, and it also handles complex loan types and terms and integrates with investment accounting, accounts payable, and the general ledger.
Finally, Yardi offers Investor Services—document management and market data that can be added to your Yardi experience and streamline your communication and data sharing with your investors.
MRI’s Investment Management Offering
MRI is newer to the world of Investment Management than Yardi, but it has recently made significant strides in this area, offering significant automation for the investment accounting process.
Within the MRI Investment Accounting module, you will find automated financials, performance management with numerous different KPI options, connections to your property management data, diverse consolidation and elimination capabilities, and consolidated capital activity posting capabilities.
MRI is currently expanding its capabilities with its waterfall calculations and promote approvals and distributions. Currently, it allows for simple waterfall calculations that will accommodate most promote requirements. The REdirect team has created several workarounds for more complex structures and work to automate the entire process.
MRI’s promote accruals and distributions do not currently have the ability to do side letters, which can represent a roadblock to some clients. For this reason, some promote waterfalls can become more complicated to set up and may require additional entity levels to accommodate.
MRI offers several other useful modules. Investor Connect works similarly to a CRM system, allowing you to post investor reporting for your investors to see and to communicate with them. However, it does not have a subscription process through which you can invite investors into new funds or through which those investors can submit payments. Also, its reporting is not directly integrated, meaning that you will need to post reports into Investor Connect manually. However, one of the main advantages of MRI Investor Connect is that it integrates so well with other platforms.
MRI’s Debt Management is a recent addition to the platform. It can automate the accounting functions around debt. This module now has the ability to not only handle debt as a liability but also handle debt as an asset, to a limited degree. MRI Debt Management handles complex loan terms and types well, and it integrates with both accounts payable and the general ledger.
MRI’s Portfolio Management module, also known as Investment Central, is an excellent risk management tool that can aggregate and analyze asset management data. This module currently integrates with investment accounting, general ledger, and commercial management, and the data can be linked to Investor Connect and MRI Strategic Planning.
Implementing Investor Automation
I am often asked how a client knows they are ready to commit to any kind of Investment Management automation implementation. Both Yardi and MRI are increasingly including their respective investment accounting modules in with other packages, bringing down the overall cost of the modules significantly. However, this cost is not the only factor to consider when deciding whether to invest in these systems.
There is also an investment of capital to consider. Even if the client can greatly reduce the cost of the module, they can still expect to expend from 150 to 1,000 hours of consulting time to get the module designed and built. This is because the system the client invests in needs to not only meet their immediate needs but also scale as part of their five-year or ten-year plan.
Setting up an Investment Management system is a significant time investment, requiring anywhere from 300 to 2,000 hours of client time, depending upon the complexity of the investment structure.
Change management will also form a major part of the process. Many clients have processes that have become deeply embedded over many years, and changing these can be challenging for all parties.
Other considerations when deciding whether to implement an Investment Management system include the need for a cleaned-up chart of accounts (COA), updated hardware, and current organization and fund structure charts. All of these things require an investment of time and money.
Get Support With Your Investment Management Needs
Our expert team is available to support real estate industry clients in all stages of their Investment Management implementation and management. If you would like to hear more or have any questions about working with us, please contact us today.
If you have any questions about any of the content in this post, I would love to hear from you, so please get in touch with me.