June 16, 2023
Asset managers are the financial liaisons of CRE performance. They need to be expert negotiators, strategic thinkers, and financially savvy. Glance into the world of asset management and the AI solutions Prophia is offering to transform the everyday tasks of these individuals.
Where a property manager’s job is all about ensuring the maintenance of a building and the satisfaction of its tenants, asset managers are much more focused on strategic oversight and portfolio planning. To accomplish this, these talented CRE individuals are responsible for a multitude of financial and administrative exercises to regularly distill the most accurate snapshot of their assets’ performance.
Asset managers play an incredibly important role in overall portfolio management and Prophia is a vertical AI solution built specifically to fulfill the ever-evolving needs of CRE professionals. Read on to discover what it takes to be a highly efficient asset manager and the ways Prophia is helping these professionals enhance their capabilities.
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What Is an Asset Manager?
What Does an Asset Manager Do?
What Are Some Challenges of Asset Management?
Prophia Is Changing Asset Management Tasks
The Asset Manager Skillset
Asset Management Metrics of Success & KPIs
What is an Asset Manager in CRE?
In the context of commercial real estate (CRE), an asset manager is a professional who is responsible for overseeing the management and performance of a portfolio of properties on behalf of the property owner or an investment firm.
Their primary objective is to maximize the value of the real estate assets and ensure that they align with the owner's investment strategy, so they play a crucial role in implementing strategies to optimize the financial performance and overall value of properties.
What Does an Asset Manager Do on a Weekly Basis?
As individuals with most oversight into the financial performance of an asset, asset manager duties are by-and-large tied to economics at the asset level of a commercial portfolio. Whether that financial oversight includes managing capital expenditure or effectively budgeting, asset managers carry out a number of duties on a daily and weekly basis to positively influence the performance of a portfolio.
Management duties: Financial & lease management, and investor relations & reporting, capital expenditure (Capex) tasks
1. Leasing management
Asset managers are responsible for monitoring income and expenses tied to their assets. They also track variances, and ensure that properties are operating within budget. To do this effectively, asset managers work closely with property leasing teams to collaborate on tenant occupancy. They may review lease agreements, negotiate lease terms, and monitor lease expirations and renewals to minimize vacancies and maximize rental income.
In order to carry out many of these duties, asset managers often rely on an ecosystem of accounting tools and data management tools to aggregate and glean insight from their lease data. As a vertical AI solution, Prophia’s machine learning and natural language processing (NLP) has undergone extensive training on CRE documents, making it an incredibly powerful tool for lease abstraction automation allowing asset managers to assess the overall performance and risk profile of the portfolio.
2. Managing capital expenditure (Capex)
Capital expenditure is an allocation of funds often from a company, private investors, or an organization that are used in the acquisition, improvement, and maintenance of long-term assets, in particular, commercial real estate. Asset managers are the CRE professionals charged with managing these funds by budgeting and planning asset enhancements and maintenance accordingly.
Capex also plays an important role in the acquisition and disposition of new and existing properties. Asset managers, in this case, will assess the capital investment needed to bring an acquired property up to the desired standards or align it with the company's portfolio strategy. On the other hand, when selling a property, asset managers evaluate the potential Capex obligations that may impact its market value and attractiveness to potential buyers.
3. Financial and lease reporting
As the liaison between asset operations and property owners/investors, having access to accurate and cohesive lease data is crucial for providing regular updates on property performance, tracking financial metrics, and managing the overall portfolio strategy. They may also participate in investor meetings and presentations, in which case, using Prophia to have unencumbered access to portfolio data points allows asset managers to approach these conversations with confidence and full awareness of business opportunities.
In addition to lease reporting, asset managers also regularly aggregate and report on the financial performance of their assets. A lot of this insight is built around Capex spending and analyzing the impact of capital investments on portfolio performance. This analysis helps asset managers effectively measure ROI and assess the efficiency of Capex allocation.
Strategic duties: Planning, performance analysis, and market research
In addition to measuring portfolio performance, asset manager responsibilities also include analyzing the operational performance of properties. They assess factors such as occupancy rates, rental income, operating expenses, and market conditions to evaluate the property's profitability.
Based on their analysis, asset managers develop short-term and long-term strategies for each property. This may involve setting rental rates, lease negotiation, property renovations, and identifying opportunities for value enhancement or cost reduction.
Asset managers stay updated on market trends, competitive properties, and economic indicators that can impact the performance of their portfolio. They use this information to make informed decisions regarding property acquisitions, dispositions, and market positioning.
Operational duties: Maintenance and repair collaboration
While asset managers are involved in building maintenance and repairs, to an extent, unlike property managers, their involvement involves effectively using funds. Asset managers will review available Capex funds for upcoming maintenance and repair projects and budget accordingly, ensuring that any associated repair and maintenance costs do not exceed the property’s income. This may involve capital improvements and managing relationships with property management companies who coordinate repair and maintenance projects.
As we’ve mentioned, it can take a village of tools for asset managers to effectively collaborate with all of the individuals responsible for portfolio performance. Prophia makes it possible to seamlessly collaborate within a single data platform capable of warehousing leases as well as all supporting documents like renewals and amendments.
Any changes to the portfolio can easily be tracked at the tenant, asset, and portfolio level all within Prophia.
What Are Some of the Challenges Asset Managers Face in Their Roles?
Asset management in CRE requires individuals to maintain a certain set of skills to overcome challenges that can have a big impact on portfolio performance. For one, market volatility often poses many challenges for asset managers. CRE markets can be subject to significant fluctuations and uncertainties. Economic downturns, changes in interest rates, and shifts in supply and demand can impact property values, rental rates, and occupancy levels. Asset managers need to navigate these market dynamics and develop strategies to mitigate risks and capitalize on opportunities.
Capital constraints pose another challenge for asset managers in the mitigation of their portfolio performance. Acquiring and maintaining CRE properties often requires significant capital investment. Asset managers need to secure financing, manage debt, and optimize the use of available resources. They may face challenges in obtaining favorable financing terms, managing cash flow, and balancing the need for property improvements with budget limitations.
If the lease is “king'' in CRE then ROI is king in business. As CRE professionals who play a direct role in many business aspects of CRE, asset managers’ have the unique challenge of maximizing the financial performance of properties through careful analysis, planning, and execution. Asset managers need to identify strategies to increase occupancy rates, enhance rental income, reduce operating expenses, and implement capital improvement projects that provide a good return on investment.
Managing a diversified portfolio of properties across different asset classes, locations, and risk profiles can be complex. Asset managers need to assess the risk-return trade-offs, monitor individual property performance, and make informed decisions regarding acquisitions, dispositions, and portfolio rebalancing.
Prophia’s Generative AI is Revolutionizing the Way Asset Managers Conduct Business
The duties and responsibilities of an asset manager are complicated enough without the added layer of sifting through unstructured data or manually carrying out important business exercises. That’s why when Prophia was founded in 2018, we began constructing our AI around the specific needs of CRE professionals to transform the way asset managers, property managers, brokers, and everyone in between, access and relate to their critical portfolio data.
For asset managers, Prophia’s contextual knowledge of CRE terms and concepts make it an incredibly powerful lease abstraction automation tool. Every Prophia-synthesized lease and supporting contractual document is warehoused on the platform and transformed into a searchable, digital asset capable of providing asset managers with layered portfolio insight by conducting a simple search. The same way one might search text in a PDF.
What’s more, Prophia takes the ability to interact with portfolio data further, annotating key concepts in leases, rights, renewals, and amendments with hyperlinks that lead from the lease summary to the original, digitized document. This connectivity ensures that asset managers always have a tether to the original source of the data, making business intelligence immediate and data accuracy unmatched in the industry.
What Kind of Skills Does an Asset Manager Need?
Someone who manages commercial real estate assets for a broader portfolio needs to have certain skills to carry out strategic duties. One major skill required of an asset manager is financial analysis abilities. Asset managers should possess strong financial analysis skills to evaluate property performance, assess investment opportunities, and make data-driven decisions. They need to understand financial statements, cash flow analysis, valuation techniques, and investment metrics such as net operating income (NOI), capitalization rates, and internal rate of return (IRR).
Additionally, portfolio performance also relies on the state of the market, and it is an asset manager’s duty to come equipped with relevant market insight to effectively measure risk and make prudent financial decisions. Asset managers should stay informed about market trends, economic indicators, supply and demand dynamics, and local market conditions. This knowledge helps them identify investment opportunities, analyze competition, and optimize property positioning.
Risk management and strategic thinking are two other very important skills for asset managers to hone when managing the performance of CRE assets. The ability to think strategically allows these professionals to develop and implement plans that ultimately maximize property value and achieve investment objectives. These strategic skills should also extend into the ability to effectively identify potential risks related to property investments, such as market risks, operational risks, and legal and regulatory risks. Effective risk management helps protect property value and investor interests.
An asset manager also needs to be a top notch negotiator with the ability to persuade various parties involved in acquisition, disposition, funding, underwriting, and operational needs of commercial properties. Because lease negotiation is such an integral part of the asset manager role, these professionals need to be able to advocate on behalf of the interests of the property owner as well as the needs of tenants. Effective negotiation skills can result in more profitable leases, better tenant relationships, and improved occupancy rates.
The ability to negotiate also comes in handy when sourcing and managing various vendors and service providers for property maintenance, repairs, and improvements. Negotiating contracts with vendors requires the ability to assess services, evaluate pricing, and secure competitive terms. Again, having strong negotiation skills enables asset managers to obtain favorable pricing, service levels, and contract terms, ensuring cost-effective and high-quality services for the property.
Certain skills like adaptability and continuous learning come with experience, but they’re nonetheless important. The CRE industry is dynamic, and asset managers should be adaptable to evolving market conditions, changing regulations, and emerging trends. They should be committed to continuous learning, staying updated with industry advancements, attending conferences, and pursuing professional development opportunities.
What Are Some KPIs or Metrics for Successful CRE Asset Management?
Profitability KPIs: Rental rate growth, expense ratios, cap rate, and NOI
As the financial liaisons of CRE performance, many KPIs and success metrics tied to asset managers pertain to ROI. One such metric is rental rate growth which measures the rate at which rental rates increase over time. This KPI reflects the ability of asset managers to negotiate favorable lease terms and respond to market conditions. Positive rental rate growth demonstrates effective revenue management.
Tracking expense ratios also allow asset managers to effectively measure the income of their assets. Lower expense ratios indicate efficient expense management and better profitability. Expense ratios allow asset managers to focus on optimizing the use of money that goes out, while the capitalization rate, or cap rate, measures the ratio of a property's net operating income to its market value. It provides a measure of the property's yield or return on investment. Asset managers aim to achieve competitive cap rates that align with market benchmarks and the property's risk profile.
Another important metric for asset managers to track is Net Operating Income (NOI). NOI is a fundamental KPI that measures the profitability of a property. It is calculated by subtracting operating expenses from the property's total operating income. Asset managers strive to increase NOI by maximizing rental income, minimizing expenses, and optimizing property performance.
Asset performance KPIs: Time on market, tenant satisfaction, lease expiration & renewal rate
Asset performance largely depends on ROI and effective management of operating expenses, but time on market is another performance metric that measures the average time it takes to lease vacant space. A shorter time on the market indicates effective marketing strategies, strong tenant demand, and efficient lease-up processes.
While an asset manager’s responsibilities may not have as direct an impact on tenant satisfaction as the day-to-day duties of a property manager, measuring tenant satisfaction is essential for assessing the quality of properties found in an asset. Surveys, feedback mechanisms, and tenant retention rates can be used to gauge tenant satisfaction levels. Higher tenant satisfaction reflects effective property management and a positive tenant experience.
Dovetailing off of tenant satisfaction, another important success metric in asset management is the lease expiration and renewal rate. This KPI tracks the percentage of leases that are set to expire within a given period and the proportion of those leases that are successfully renewed. High lease renewal rates indicate tenant satisfaction, long-term stability, and reduced vacancy risk. Tracking these lease expiration schedules are just another area of asset management that Prophia makes easy and interactive with the dynamic stacking plan.
Portfolio performance relies heavily on the responsibilities of asset managers. These individuals are financially savvy, strategic thinkers, who are able to multitask between nurturing investor relationships and making business decisions that greatly move the ROI needle in CRE. The requirements of the job certainly aren’t easy, but data management tools like Prophia make it possible for these hard working individuals to spend more time on strategic operations.
If you’re an asset manager who frequently gets bogged down in manual tasks or lost in a sea of unstructured data, Prophia can automate and streamline the most important tasks of property management. To get started on the path to better data and task management, reach out to someone on our team or learn more about Prophia’s AI capabilities that are fundamentally changing the way CRE professionals carry out daily tasks.