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Defease With Ease | Thirty Capital recently attended the IMN CFO/COO Conference in Dana Point, California. Anne Hollander had the privilege of moderating the Real Estate Operational Executive Roundtable. Read ahead for a recap of the hot topics they discussed and key takeaways from their discussion.
Topic #1: Recalibration in the Capital Markets
Many organizations are looking at investment horizons and upcoming loan maturities as valuations cool. The panelists discussed some of the effects they have experienced as a result of recalibration in the capital markets including:
- Longer holds
- Increased delinquency rates
- Increased expenses
- Shifts in cashflow
- Investors resetting their expectations
Watch the on-demand webinar 2023 CRE Outlook: The Recalibration of Commercial Real Estate to learn how to navigate market changes and gain more control over the outcomes of your portfolio.
Topic #2: Challenges Impacting Current Deals
Across the panel, a number of different asset & portfolio types were represented. The panel discussed some of their current challenges and how they are managing these obstacles given the current climate.
Recent bank failures and concerns around doing business with regional and institutional banks was cited as one challenge that has impacted deals. Another concern is that their “back is against the wall” in some assets. For example, value-add renovations are taking longer than expected due to supply chain issues and worker shortages.
Finally, increases in insurance costs across multifamily properties is impacting deals. There has been a 42% year-over-year increase in insurance. CRE owners may be forced to choose between a capital call to cover the premium costs or greatly reducing casualty coverage on the asset. One solution given by the panelists is to shop around for insurers and new coverage options to better manage these insurance increases and potentially reduce costs.
Topic #3: Improving Efficiencies
We’re on the efficiency side of the market cycle and firms are “battening down the hatches.” The panel discussed some of the most costly and inefficient areas of their business and how they are improving them.
A general consensus amongst the panelists is that “we’re all asset managers now.” Now more than ever, the entire leadership team must align on operational strategy and financial engineering to improve efficiencies and lead the organization to success. As such, COOs are rolling up their sleeves and getting into the tactical elements of the business in order to be better informed on the hard decisions in front of them.
The panel went on to discuss challenges facing front-, middle-, and back-office management:
Front-Office Management
With regards to front office management, the panelists shared concerns around keeping teams busy. The panelists said there is a serious concern that if deals aren’t being done,
they’ll lose front-office talent. But, the challenge also lies in keeping talent for an indeterminate period with little for them to do as operational cashflow decreases.
Middle- and Back-Office Management
Concerning middle and back office management, the panelists shared talent concerns and agreed that they are unlikely to continue internal hiring for the moment. Instead, the panelists are shifting focus on outsourcing non-strategic or non-differentiated roles (particularly around IT and accounting).
Finally, the panelists shared that they are considering automation in order to gain more bandwidth from the team (and avoid both hiring & layoffs).
Topic #4: Future Predictions for CRE
The panel concluded with a discussion about market predictions for the next 12 months. The consensus was that COOs in the space are cautiously optimistic, particularly those in the industrial and multifamily sectors. They’re seeing the light at the end of the tunnel but recognize the amount of work & transformation in their business that’s required to get there. In the next twelve months, there will be big decisions to make, none of which are easy. This dynamic will, as they said, “separate the girls from the women”.
