Commercial real estate (CRE) asset managers are on a constant quest to find new opportunities to drive alpha and maximize NOI. But once you’ve exhausted methods like increasing rents or reducing vacancy rates, what’s next? How do you find meaningful ways to boost NOI and improve performance in the market?
In our webinar, Adjusting Your CRE Portfolio Strategy to Drive Alpha in 2023, we discussed strategies to mitigate potential risks and effects of a recession, prepare for cashflow unpredictability, and drive alpha in 2023. Watch the webinar for a deeper dive, or read ahead for some quick tips and key takeaways.
Defining Alpha
Alpha is the excess return on a portfolio of assets when compared to its benchmark. It means creating more cash flow today than you had yesterday and continually looking to create even more. To drive alpha, you must constantly improve your properties’ performance and outperform your competitors, thus improving the value of your portfolio overall.
Best Practices for Driving Alpha
1) Benchmarking
Every real estate owner needs to take a closer look at their portfolio and really understand where they’re performing well, and perhaps where they’re falling a little bit short. Being able to visualize your portfolio and compare it to others in the market can help you rise above your competitors. Peer-to-peer benchmarking is a great tool for understanding how the performance of your portfolio compares to similar ones in the market, and the insights you gain can be applied to sharpen your portfolio’s performance overall. For example, with benchmark data, commercial real estate owners can identify whether their property’s expenses are trending higher than the market average. Then, they can use that information to determine where costs can be cut and identify other adjustments that could be made. Income/Expense IQ Benchmarks allow asset managers to view years of benchmark data to help inform their decisions about their portfolio.
2) Escaping the Limitations of Excel Gymnastics
Manual data entry (often involving spreadsheets) is time consuming because it requires a heavy demand on your team’s time and resources, which could be better utilized for activities that drive alpha. Additionally, this process slows your financial reporting, which increases the amount it takes to derive insights from your financial data. Excel spreadsheets are also prone to human error, which means that your financial data may not always be accurate. When you automate your asset management, you can access the most current version of your data whenever you need to. Modern solutions streamline your asset management to provide faster, more predictable returns and greater visibility into portfolio, giving time back to your team for value-add activities.
3) Managing Expenses
Over the last year, we’ve seen almost a double-digit growth in expense percentages in the United States, particularly in insurance, maintenance, and utility expenses. These jumps in expenses are concerning for cashflow, regardless of asset type. Raising rent to offset operating costs can only get you so far. Maintaining your properties is imperative for maintaining their value, but you may be paying more than you need to. When you compare your expenses to other portfolios, you may find areas where you can cut expenses while avoiding sacrificing the integrity of your properties.
4) Utilizing Technology
Standardizing the way you analyze your property data and getting it out of Excel and into an asset management software eliminates room for human error and creates massive efficiencies. CRE asset management software allows you to break down your expenses line-by-line and make changes based on the inefficiencies you find.
Adopting a Modern Solution
Defease With Ease | Thirty Capital’s asset and debt management platform, Lobby CRE, provides a centralized solution to manage your commercial real estate portfolio’s operations, debt, equity, and risk. Operating as an all-in-one, cloud-based solution, Lobby CRE is designed to manage and optimize cashflow for faster returns to the sponsor and investors. Contact us today and schedule your demo.
