Many real estate investors focus on buying and selling properties, but they often overlook the most important part of a deal - asset management.
Instead of talking about finding smoking hot deals, profits and returns, or market trends, asset management deserves more attention.
Asset management determines how well a property performs after closing. Below, we’ll explain what asset management is, why it matters, and what the best asset managers do to maximize profits and reduce risk.
What is Asset Management?
The process of maintaining and operating an asset is called asset management. The goal is to make sure that the property is being run smoothly and correctly. An asset manager is responsible for ensuring that things are going well, according to the business plan. Asset managers are in charge of implementing the business plan.
Why Does It Matter?
Asset management is arguably the most important factor that determines the success of a multifamily deal. Asset managers oversee property managers and make sure they are performing their duties. They also keep track of the property’s performance, and keep everyone accountable. Asset managers are the ones who implement the vision of the general partnership team for the deal, which includes any community improvements.
As you might know, a deal’s underwriting will not translate to the property on its own. Underwriting is simply numbers on a paper. It’s the asset manager’s responsibility to make sure the business plan is implemented.
Any investor in an apartment syndication deal is going to want to realize strong returns on their investment. If the deal doesn’t produce good returns, they won’t be happy. The return is a result of how well the business plan was followed and executed.
Good Asset Managers Do THIS!
A great asset manager can determine if a deal goes well or poorly. So, making sure you have a good one is essential. These are some traits of a top level asset manager.
Leads a Team Well: Asset managers will need to lead property managers and contractors to make sure the property’s operations and renovations are being done efficiently and effectively.
Has Strong Communication Skills: An asset manager will need to be able to present the vision for the property to their team members, property managers, lenders, and contractors. They will also need to communicate updates from the property to the general partnership team.
Analyzes Data and Track Metrics: An asset manager must be able to process and analyze data from the property to determine how the property is performing, and to identify any potential issues. They will review rent rolls, evictions, bad debt, and occupancy rates.
Knowledgeable in Every Side of Multifamily: As an asset manager, a person will need some fundamental understanding of construction, operations, finance, taxes, transactions, insurance, marketing, real estate, etc.. They won’t need to be experts in each of these, but previous exposure is key to helping them do a good job, because an asset manager does a lot of different things.
Since asset managers typically collect 1-3% in asset management fees, they need to be qualified to be in this role.
The Critical Role of an Asset Manager
It’s often that when a property doesn’t perform well, the problem lies in the way the business plan was implemented.
Good asset management involves weekly communication with the on site property management team. And no, a quick email exchange does not count. Strong asset management means hopping on weekly phone or video calls. These calls are the best way to keep a pulse on the property.
Some of the things an asset manager might track on these calls include:
Evictions: What evictions are taking place? Are there any evictions that need to occur?
Bad Debt: What is the status of bad debt at the property?
Rent Collection: What is an update on rent?
Occupancy Rate: Is the occupancy rate similar to the rest of the market? How could you improve it? What is a healthy occupancy rate to maintain during renovations, and where is the property relative to this rate?
How Can Asset Management Improve?
It doesn’t matter where the property is in terms of performance - you can always do better!
Maybe rent can be increased, or operational efficiency can be improved, or resident turnover can be reduced.
Striving towards a higher bar allows you to continue identifying areas of improvement, which will help you, the residents at the property, and the investors in the deal.
Educating The Team
Asset managers need to translate the vision for the property to the property management team. Although general partners are the ones who underwrite the deal and determine the business plan on paper, property managers are the ones who operate the property day-to-day. So, asset managers need to educate the property managers and make sure they look at factors besides the property’s financial aspects. The property managers need to also take care of residents, and cultivate a welcoming community at the property. Residents pay the rent that allows you to generate revenue at a property, so taking care of them and making sure they are happy should be a priority!
Managing the Manager
Just because you’ve closed a deal and hired a third party property manager doesn’t mean your work is done. Asset managers should play an active role in the property.
This doesn’t entail doing maintenance and repairs yourself. Instead, the asset manager should stay on top of the property manager, acting as a high-level supervisor.
An asset manager’s main goals are to maximize market value, maximize returns, and reduce risk.
Maximize Property Value
An asset manager makes sure the property is attractive to potential residents and future buyers. In order to do this, they keep the property at a healthy occupancy, and maintain the highest NOI they can.
In order to do this, asset managers also make sure to understand the types of investors who might buy an asset like the one they have. This helps them to know if they should leave “meat on the bone” for other investors to come in and add value.
Maximize Returns For Investors
Asset managers focus on maximizing the revenue and ROI of a property. In order to do this, they work hand in hand with the property managers to maintain a healthy cash flow, oversee maintenance, and improve the condition for the property as outlined in the business plan.
Minimizing exposure to risk is key to protecting investors in an apartment syndication. Asset managers reduce risk by maintaining a good relationship with residents, getting ahead of repairs, improving operational efficiency, keeping a pulse on market trends, and more.
Asset Management Takeaways:
Good asset managers prioritize maximizing the value of the property they are responsible for. The goal is to make the property as appealing for future residents and buyers as possible.
Asset managers work closely with property managers to ensure that the business plan execution is done well.
While the acquisitions team is responsible for sourcing great investment opportunities, the asset manager is to thank for making sure they stay that way.