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Ankur has more than 22 years of experience in defining, designing, and implementing large and complex business IT systems across various industry domains, including Private Equity, Insurance, Travel, Media, and Telecom. Prior to co-founding PE Front Office, he worked with a leading PE firm as their Enterprise Architect and with Sapient Corporation, India as their Senior Technology Manager. In 2013, Ankur authored a book titled “Enterprise Technology in Private Equity”, published by PEI Media, London.
The Alternative Assets industry has witnessed exceptional growth in the last decade with Private Equity, Hedge Funds, Real Estate, and Private Debt contributing a major chunk of Alternative investments. Sources estimate the industry to reach USD 18 trillion by 2024 and thus Real Estate Assets, that form roughly 9% share of the total alternative investments globally, offer Alternative Investment managers plenty of investment opportunities.
Although transactions in Real Estate and other asset classes are largely similar, there are some differences in the investment process. One of the major differences is the nature of the investee entity, for example, in the case of other asset classes, the investment is made in ‘Companies’, on the other hand, in the case of a Real Estate fund, the investment is made in ‘Projects/Properties’ of ‘Companies’. While the normal due-diligence process comprises activities such as evaluating the books and performing the ‘quality-of-earning’ review of the company, for a real estate fund, it comprises activities such as inspecting the property, verifying leases, and securing necessary government permits and approvals. When it comes to investment management, while Real estate funds use the loan-to-value (LTV) ratio, other asset classes use the debt-to-equity ratio to measure financial leverage. Another difference can be the valuation methodology, while typically the companies are valued on the Revenue or EBITDA multiple, the real estate projects/properties are valued using either the Income approach, the Cost approach, or the Sales Comparison approach. Additionally, for assessing the financial health of the project/property, real estate funds focus on a different set of portfolio financials such as Capitalization Rate, Net Operating Income, Gross Operating Income, and Cash-on-Cash Return.
The new and innovative investment approaches, complex evaluation processes, compliances/regulations, and hectic schedules of real estate fund managers have led to the need for technology solutions that can help manage and streamline the end-to-end investment process. However, generic technology solutions don’t work well in this industry as each asset class follows different investment processes.
New-age technology solution providers are aware of these needs of the real estate funds and understand that each asset class requires a specific technology solution that is designed with a different focus. Real Estate specific technological solutions can streamline investments by offering extensive monitoring capabilities as well as the flexibility to manage assets at both property and project levels. Below are some major features that an ideal real estate investment management solution should offer:
Deal Management
A robust real estate investment management solution should standardize the deal evaluation process and allow the investment teams to efficiently manage multiple deals to arrive at the winners. Some deal management capabilities offered by an ideal real estate investment management solution are:
Portfolio Management
Portfolio Management is a critical task for a Real-Estate Fund. It requires accurate and timely data collation from the respective properties and projects and its analysis in real time. Some portfolio management capabilities offered by an ideal real estate investment management solution are:
Investor Management
A real estate investment management solution should empower the investor relations team with extensive capabilities to manage investor relations and maximize opportunities for tracking potential investors, fundraising activities, and investor communication. Some investor management capabilities offered by an ideal real estate investment management solution are:
Fund Administration
The increased complexity of new-age specialized funds has made fund administration a complex activity that asks for considerable time and effort. A growing number of Fund managers are seeking refuge in Technology to simplify this complex activity and to their delight, new-age technology solutions are coming up with innovative solutions. Some fund administration capabilities offered by an ideal real estate investment management solution are:
Utility vs Productivity
An ideal real estate investment management solution should not only focus on utility but also help in improving the productivity of the investment team. Some new-age technology solutions have attempted to fill this gap by offering the following additional features:
Conclusion
Maximizing overall investment returns is the primary objective of real estate investment management. However, a lot goes into maximizing the returns, from judicious evaluation of investment opportunities, effective monitoring of portfolio investments, timely reporting to investors to proficient fund administration. Technology contributes big time to streamline these complex and important activities and is poised to show us the correct way forward in the future.
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