The asset management cycle

We recently published a summary of the main real estate disciplines involved in the effective asset management of a property or portfolio of properties.  We will dig deeper into those disciplines over time. However, we first wanted to share another slide from the same lecture that summarizes the property deal cycle from an asset management perspective.  The slide refers to the following key areas of a deal:

·      Sourcing – primarily refers to finding deals that match your investment criteria, which can include self-sourced off-market deals or working with investment sales professionals. The process is more effective if, as outlined in a previous post, you have a solid understanding of your (or your investor's) objectives and strategy.

·      Due Diligence – can be broken into two steps – (i) the preliminary underwriting to see if the opportunity is worth pursuing; and,  (ii)  a more thorough due diligence process, including vetting of the physical, financial and legal aspects of the property.  If the investor decides to move forward, this process should yield a clear strategic plan for the asset(s).

·      Financing (Debt & Equity) – this is the source in the “sources and uses."  What is the source of equity?  Previously raised funds – or does capital need to be raised on a deal by deal basis?  Then, of course, the debt structure, there is the primary loan, but will there be mezzanine loans or similar secondary loans?

·      Closing – which includes, the coordination of the legal and financial matters necessary to take title to the asset.

·      Strategy Implementation – in certain respects, the basis of the strategy was established during the preliminary underwriting period since the sourcing is in line with a set investment objective and basic strategy.  However, the actual strategy plan is created during the more in-depth due diligence process, and depending on the action required, implementation can commence before the close date.

·      Sell/Hold/Recap Analysis – at some point in the hold cycle (3, 5, 7, 10 years as the case may be), an analysis must be performed to determine if the asset should be held or sold.  If held, should it be refinanced or otherwise recapitalized to pull funds out?

·      Back to Sourcing – assuming a decision is made to sell or recapitalize – sourcing will help with the deployment of those funds. Regardless, sourcing is a continuous process.

The strategy implementation portion of the cycle is critical, and the majority of the time is a multi-year process.  As noted in previous articles, strategic operations and leasing are a vital component to the successful execution of a business plan.  The operational phase is probably the least “sexy” of the above activities, but instituting best practices and purposeful implementation that focus across the disciplines will put ownership in the best position for success, particularly when yield is harder to come by.

This article is for general information, educational, and entertainment purposes only.  Establishing and implementing a strategy for a particular property encompasses many unique factors, and professional advice/services should be sought for that specific transaction or investment.