In this AFIRE Summit piece, Barings explains that the asset management function has always been integral to long-term value creation in real estate—but COVID-19 has served as a fresh reminder of just how crucial it is for navigating conditions during a crisis.
The spread of COVID-19 across the globe, and the rippling effects across all geographies have left no segment of the economy untouched. Real estate markets are no exception. From deserted office buildings to shuttered storefronts and empty hotels, the impact has been more severe than many investors’ downside scenario analyses would have predicted. Yet, global real estate markets still offer potentially attractive returns over the long term—across a wide variety of sectors and risk types—if investors can effectively navigate the current storm. Critical to this effort are the asset managers themselves—also known as the “eyes on the asset.”
The Eyes on the Asset
Even in “normal” times, the tasks performed by real estate asset managers (AMs) are broad-based. AMs develop, monitor, and drive the long-term value creation strategy for real estate properties, focusing on risk management at every stage. Typically involved even before a property is acquired or a loan is originated, AMs are charged with understanding the latest trends across specific sectors (e.g., office, retail, logistics, etc.) as well as geographical nuances—from the country-level to the city block. They are also the driving force responsible for executing the strategic business plan for each individual property. Depending on the nature of the asset, this may involve improving rent collection, optimizing a property’s tenant mix, implementing value-creation plans that can range from minor improvements to ground-up construction, and ultimately managing the sale process to realize the greatest potential value for investors.
Managing this broad set of responsibilities presents its own set of challenges day-in and day-out during normal times, from managing tenant nuisances to clearing construction delays. But adding a global pandemic to the mix changes the equation markedly, and our teams at Barings have attempted to manage this transition from “business as usual” to “crisis mode” in a strategic, timely and decisive fashion. So how do you manage through a global pandemic?