Over the past few years, there has been a growing focus at IREM on the increasingly sophisticated, highly nuanced relationship between property managers and asset managers. Also coming under greater scrutiny is the relationship between the asset manager and a company’s acquisitions/dispositions team.
Not surprisingly, that relationship changes from firm to firm, as Dustin Read, PhD/JD, points out in his new book, Acquisitions & Dispositions: The Role of The Real Estate Asset Manager. One of the key points in the book, and certainly one that I have seen borne out in my own professional experience, is that the most successful combinations of talent exist in a culture of communication and respect across disciplines. In that way, there is little difference between the relative roles of asset manager and acquisitions/dispositions and that of the property and asset manager.
Creating a collaborative dynamic across disciplines is a process that grows from the top down. “The structural organization of a real estate investment management firm must . . . be taken into account when exploring ways to help asset managers collaborate with acquisition and disposition teams,” writes Read.
As one professional interviewed for the book is quoted as saying, “Acquisitions has to see asset management as a partner. Our asset management team has people working across different regions and different product types with different levels of experience in redeveloping or repositioning properties. It’s on acquisitions to seek out the right people with the right experience for a given transaction.”
Clearly, it’s important that these teams be blended so everybody is working together, that both acquisitions/dispositions and asset management understand what the buy, hold or sell objectives are, whether it’s a product or a portfolio, and indeed each brings a specialized skillset to the party. When everyone is on the same page and everyone takes ownership of what their roles are, siloed mindsets are put aside in favor of a productive working relationship.
It’s a matter too of having people on staff who recognize that the other players in that scenario are of equal importance. To that extent, a collaborative culture grows not only from the top down, but it also grows outward to other disciplines, a fact vitally important not only to the acquisitions/dispositions and asset management disciplines, but to property managers as well. For instance, says Read:
“All types of real estate practitioners interested in informing acquisition and disposition decisions were pressed to enhance their ability to identify factors capable of eroding the competitive position of properties. Changing submarket conditions, upcoming tenant rollovers, pending capital improvements, and the phase of the market cycle a specific real estate product type or geographic location are in were also put forth as examples of variables influencing whether or not it is time to buy or sell.”
In fact, Read quotes one director of investor services who noted that, “Property managers need to read the investment prospectus and manage or provide information with those objectives in mind.” To that end, it behooves the property manager to bone up on such issues as purchase and sale agreements, loan documents, sources of debt and equity financing and the due diligence activities involved in real estate transactions.
Within that context of shared knowledge, the importance of the asset manager’s involvement in acquisitions and dispositions becomes clear.
On the acquisitions side, an asset manager, truly on top of her or his game, brings a wealth of knowledge and a critical perspective to the team and so, it makes sense that the asset manager should weigh in on the acquisition pro forma. The asset manager is out in front of the product type, the geographical area the fund is looking at and understands the criteria of the ownership entity.
“Real estate investment management firms were encouraged to involve asset managers in underwriting as early as possible to prevent acquisition teams from getting prematurely locked in on deals,” writes Read. “This was perceived to be important because failing to do so can create a risk of acquisition specialists becoming so committed to a transaction that they find it difficult to walk away from the ledge when new information is available.” (He goes as far as to suggest that the best way to avoid conflict between players is to give the asset manager not just involvement, but indeed greater influence over underwriting decisions.)
The same function exists on the sell side. As Read states, “no one knows the properties better than they do and they can vet all of the information included in an offering memorandum. They can also use the information they have to lead capital transactions groups towards a sale decision.”
No matter if we are talking about buying or selling—and no matter the nature of the organization, be it REIT, private equity fund or whatever. A culture of collaboration has to be developed from senior management and then communicated to the teams. A failure to do so results in a siloed internal structure and a disconnect that disrespects ownership’s investment vision.
To put it another and more positive way, Read says, “Collaboration tends to lead to more effective communication and a work environment conducive to achieving mutually beneficial goals.”
Now, needless to say, cases of siloed operations suffering under a disconnect between these two disciplines are not found straight across the board, but they do exist. As mentioned above, and as I have mentioned in this space before, we often see that same dysfunctional dynamic in a disconnect between asset and property managers who are not aligned or when one or both of those operatives are not at the top of their game.
Everyone needs to be on the same page to properly, professionally and efficiently turn the investment strategy of the ownership entity into the reality of a profitable portfolio.
Michael T. Lanning is 2017 president of the Institute of Real Estate Management. In addition, he is senior vice president and city leader for the Cushman & Wakefield, AMO, office in Kansas City, Mo.