It would be an understatement to say the global economy has suffered a series of shocks since mid-2022. Like many industries, the commercial real estate space paused—transaction volumes are down by 44%, according to Juniper Square, the leader in partnership enablement for the private funds industry—in order to ride out the uncertainty.
And while this period of “wait and see” can be painful for groups that drive enterprise value by doing deals, it also creates an opportunity for forward-thinking groups to focus on ensuring they have the right foundation to take advantage of whatever comes next.
Real estate has always been comfortable with outsourcing. The most successful managers realize early on that they must focus on what they are good at and let best-in-class partners handle the rest. It’s not uncommon for a GP to outsource property management or asset management, landscaping, valuation work, environmental studies, leasing, or brokerage services.
Now, GPs are outsourcing more middle and back-office work to drive efficiency, streamline processes, and gain operational leverage. That, plus an investment in the right technology, builds flexibility into the operating model of a business.
The unavoidable truth is that in order to satisfy investor demand for transparency, accountability, and timely reporting, operational excellence is non-negotiable for CRE GPs.
All sorts of technology can help drive operational excellence—investor portals, CRMs, and reporting tools can help streamline an investment manager's business. Operational efficiency is about automating the routine tasks that happen on a regular cadence without much variation. Think capital call notices, distribution notices, and quarterly PCAP statements, along with the dissemination of K-1s during tax season.
But rather than build their tech stack from scratch or Frankensteining multiple vendors together, GPs are partnering with leading companies like Juniper Square to deliver the type of sophisticated, tech-enabled investment management experience that many investors prefer. “Modern investment management is about transparency, efficiency, and scalability,” said Brandon Sedloff, Managing Director of Juniper Square. “Think about brokerage accounts at a place like Fidelity or Charles Schwab—investors want to access and contextualize the relationship with their real estate GP in a similar fashion. The expectation is that managers provide not just documents but asset-level details, fund performance information, and transactional details. LPs expect to be able to get information in real-time—anything less than that is unacceptable and antiquated.”
By building out a single source of truth and digitizing routine tasks, GPs can free up their team’s time to focus on more high-value work, be it developing stronger investor relationships, reacting to market-moving events, or pouncing on great deals when the time comes. “Technology allows a business to scale up when the markets necessitate it or quickly scale down as the markets change,” said Sedloff. “With all the information stored in a centralized system, every employee has access to the same data at any time. Technology also builds flexibility into the operating model of a business, and this is particularly important because of the increased focus being placed upon the operations and the value of the enterprise.”
Technology not only makes a manager’s day-to-day more efficient, but it also improves the operations of their fund administrators. By working with a third-party administrator, GPs can reduce risk, ensure accurate, timely, and transparent reporting, and streamline next year’s tax and audit season. It also gives their internal teams the time to focus on more high-touch investor interactions and tasks.
“Juniper Square is the first, and perhaps the only, third-party fund administrator that is technology first,” said Sedloff. “By bringing technology and services together, we are creating the new paradigm for ‘modern administration.’”
At the end of the day, the behind-the-scenes work of the fund administrator powers many of those investor interactions. A GP needs easy and immediate access to their own fund performance data to quickly respond to investor requests and use that data to make better investment decisions. This means that the fund administrator should use best-in-class technology that enables internal teams, third-party providers, and LPs to be able to access any information needed at any time.
“A historical limitation of fund administration is that you lose control of your data, and most admins lack sophisticated tech. That’s what makes Juniper Square different—we offer the same institutional-quality service but couple it with best-in-class technology. Both GPs and their LPs benefit since data is accessible to those who need it when they need it,” concluded Sedloff.
Regardless of what the rest of the year brings, GPs sitting on a pile of dry powder with strong investor relationships, backed by the power of modern administration, will be well-positioned to take advantage of future opportunities and reap the benefits of an eventual recovery.
This article was originally published on April 19, 2023, on Propmodo.com.