So you just got assigned a new asset and the 5-year CRE turnaround plan clock has started ticking. You’ve been here before, and this rush of activity and movement is probably one of the things you love most about your job.
While the overarching goal is always to protect and grow the value of your property portfolio, you can’t always deploy the same playbook across all assets. Sometimes it helps to ask questions with fresh eyes.
Questions like “Where do I invest to improve NOI?” “What do I fix first to increase lease rates fast?” “What are the speed bumps that are going to surface across the next 60 months?” “Does operational efficiency matter?”
While the market is always changing, remember that data is your friend. Data direct from the asset itself cuts across all elements of your strategic focus: financial performance & value creation; leasing & tenant relationships; capital planning & project oversight; market monitoring & risk management; and stakeholder reporting & strategy alignment.
If you have a new asset you need to invest in strategically with laser-focus on lease rates and NOI, don’t hesitate to ask these questions each time. And when you’re ready to dig in on the plan, map your strategic focus areas to these five proven tactics.
Strategic focus area #1: Financial Performance & Value Creation
Goal: Reduce expenses, grow revenue. That’s the obvious formula for more Net Operating Income and, presumably, higher asset value.
You may be tempted to run this formula on building technologies currently deployed in your new asset. We all know that SaaS subscriptions look like a liability to commercial real estate buyers when they are a direct operating expense on the property.
And since most building technologies operate with a subscription model these days, cancellation may have already been negotiated during the acquisition process, or you’re looking to simply cut all SaaS expenses as soon as the purchase closes escrow.
But expenses and revenue don’t have to be at odds. Here is an unlikely way to improve NOI: use operational building data – accessed from real-time connections to energy consuming equipment – to create revenue and drive down costs.
How data can be your friend: Implement a PropTech program at the corporate level to include specific tracks and technology preferences for high value efforts like ESG reporting, energy efficiency monitoring and digital access control. Incorporate these elements as bedrocks to your turnaround plans and develop a stable of trusted providers who are willing to structure deals specific to your 5-year timeframe.
Strategic focus area #2: Leasing & Tenant Relationships
Goal: Improve lease rates. Some asset managers likely put this as their number one job task, and it hasn’t been easy in recent years.
While some real estate markets are rebounding, others are cratering. And who knows where your next asset will be located. What you do know for certain is that you’ll be expected to get tenants in the door and retain them for the life of their lease or your ownership, whichever comes first.
Even in Triple Net Lease structures, energy management and efficiency play a role here. Most tenants put specific setpoints in their leases. Come Monday morning in July, their spaces need to be cool and comfortable. Come lunchtime in February, the IT team on Floor 6 better not need space heaters and electric blankets.
How data can be your friend: Give your building operators the data resources they need to deliver on the lease terms you negotiated. Your Facilities Managers and Building Engineers are the frontline for tenant relationships. Help them succeed with actionable insights that can deliver tangible asset value.
Strategic focus area #3: Capital Planning & Project Oversight
Goal: Budget, execute, square up. As part of your capital planning and project oversight responsibilities, you have plans to make investments in strategic areas of the property.
The first place to look is aesthetic improvements that improve lease rates. But what if the chiller is at the end of its life? What happens to your budget when the air handling units serving the floors you just leased can’t keep up with all the VAV boxes the tenant is installing in their fit-out?
Issues with mechanical equipment can set you back millions and have lasting impacts on lease rates. Maybe the property inspection revealed some of these risks during the acquisition process. Or maybe one angry call from a high value tenant is the first time you’re hearing about them.
How data can be your friend: Before you shut off that subscription to the energy efficiency system or the building optimization program, check if it has been collecting time-series data on the mechanical systems. Or, if there wasn’t any such technology existing, refer back to recommendation #1 and the PropTech program you were going to implement.
Predictive Maintenance should be a capability of this program so that you can get a handle on where you’re most at risk of critical equipment failures or ask your engineering team to run predictive capacity models to ensure your systems can handle the increased load all those new leases will bring.
Strategic focus area #4: Market Monitoring & Risk Management
Goal: Measure performance, manage risk. There wasn’t always a risk element to the asset manager job description. But natural disasters are more frequent, insurance is more costly and Building Performance Standards are increasingly painful.
How data can be your friend: Leverage data experts to identify risk and extract value. You probably have a corporate ESG data platform but are you getting all the data you need from all your properties? Has the facilities team at that new asset been properly onboarded into all the systems you need them to report into? Don’t forget the human element that makes data actionable.
Strategic focus area #5: Stakeholder Reporting & Strategy Alignment
Goal: Report progress, add value. Five years is a long time in business. Don’t wait until you sell your asset to prove your worth. Stakeholder reporting and strategy alignment is a crucial aspect of what you do. If you aren’t incorporating asset-level data into this reporting, you’re missing an opportunity to show incremental value.
How data can be your friend: Make sure your reports and dashboards drill down to the asset level and project value across multiple factors, including operational improvements. Identify areas where you grew revenue, not just reduced expenses. Utility rebates offer huge opportunities to do just that. Ask your engineering team where there are revenue opportunities like this that you might be missing.
Summary grid
Asset Manager job focus area | How data can be your friend in your 5-year CRE asset turnaround plan |
Financial Performance & Value Creation | Implement a corporate PropTech program |
Leasing & Tenant Relationships | Provide building operators with tools that deliver actionable insights |
Capital Planning & Project Oversight | Understand data needs before canceling contracts |
Market Monitoring & Risk Management | Leverage data experts to identify risk and extract value |
Stakeholder Reporting & Strategy Alignment | Ensure reports and dashboards truly include all the data you need |
In Conclusion
While 5-year CRE turnaround plans are likely to be different depending on the asset class, age, location and a variety of other factors, there are several things an asset manager should be sure to include in their acquire-invest-sell playbook. Here is a summary of those 5 things:
1.) Implement a PropTech program at the corporate level, include specific components for technology preferences, ESG reporting requirements, energy efficiency benchmarks and digital access control. Develop a list of trusted providers for each component to move quickly when a new asset gets assigned to you.
2.) Adapt the deal terms as needed but maintain the tools that keep building operators informed so they can reliably deliver those terms. Facilities Managers and Building Engineers are your front line to tenant satisfaction.
3.) Understand your data needs before canceling contracts. If you incorporate it into your turnaround plan appropriately, real-time data from operational systems is more valuable than the line item it represents on your balance sheet.
4.) Manage people and processes and then technology. There’s always a human element that your technology systems may be overlooking.
5.) Ensure your reports and dashboards include all the data you need, including detailed information on operational improvements. If you don’t, you could be leaving hundreds of thousands of dollars on the table.
Go Deeper
Would you like help developing a 5-year turnaround plan for your new assets? Have you considered the value that real-time data and ongoing commissioning can bring to your asset, regardless of how long you plan to hold it?
InSite is a leading solution partner for optimization in buildings, extracting value from data to engineer meaningful outcomes for its clients.
We deliver financial and operational impact by harnessing our team’s expertise in engineering and building performance optimization. Our Engineered for Results approach combines an intelligence platform that collects and analyzes data for single buildings and entire portfolios with our program management teams who transform data into prescriptive recommendations.
