What Is a Real Estate Asset Manager?
When most people think about investing, they instantly think about stock market investing, portfolio managers, and the more typical investment management services for their retirement savings. The stock market and traditional investments such as 401k’s can be good options for many, but there are several other investment strategies that an individual can pursue to produce solid, passive investment returns.
One such investment is real estate. Real estate is an excellent alternative investment strategy; particularly real estate syndications. Investing in commercial real estate, if done with an experienced syndication sponsor team, can be very lucrative. The members of a real estate syndication team can make or break an investment. That is why it is important to have a very experienced asset manager as part of the real estate syndication team. Asset managers are the eyes and ears that scrutinize the financials of an asset’s performance.
Commercial real estate assets require asset management, which is not to be confused with property management. These are two different roles with completely different functions, which we will discuss. In a nutshell, the asset management team is responsible for making a positive impact on the property’s value during the hold term of the asset. A real estate asset manager is ultimately key to the success of the asset’s performance.
In this blog post, you’ll learn everything you ever wanted to know about an asset manager and the strategies for understanding how to research a potential real estate syndication investment.
What Are The Functions of An Asset Manager?
Property asset managers have different functions and skill sets from that of professional property management teams. But both an asset manager and a property manager ultimately oversee the asset’s performance and assist investors with their commercial properties – just in different ways.
An asset manager may conduct most or all of the following tasks on behalf of their clients:
- Manages cash flow to maximize the asset’s returns
- Conducts in-depth real estate market analysis
- Helps to increase the asset value
- Helps to conduct due diligence on an individual property
- Hires and oversees the property manager
- Determines when preventative maintenance needs to be done
- Tasked with lowering overall operating costs
- Negotiates leases and contracts
- Acts as liaison to the property owners
- Mitigates risk for the investors
- Oversees service providers and budgeting efforts
- Implements contract negotiation with third parties
- Conducts financial analysis and projections
- Locates financing and debt service sources
- Negotiates loan terms
- Assists with closing documentation and procedures
- Appeals real estate taxes
- Determines the holding period length for the asset
- Plans and conducts capital allocations and capital expenditures
- Handles overall risk management
What are some of the Differences Between Asset Managers and Property Managers?
When property managers manage commercial real estate investments their role is to oversee the daily operations of a property on behalf of the investors. They have extensive local market knowledge, and they have exceptional skills in tenant procurement as well as retainment. They take care of the maintenance of the physical structure of the asset as well as the grounds. They take care of tenant needs, on-site activities, and all tenant interactions. A property management team serves an important role in making sure the property is being run well.
Commercial real estate asset management functions, on the other hand, entail maintaining or increasing the property’s value by maximizing the cash flow of the commercial building. Think of an asset manager as a portfolio manager that oversees real assets. They oversee budgets, taxes on the property, appeals of those taxes, construction budgets and returns on investment, market analysis, and capitalization rates, and they help to manage the property managers (along with the property owners) to keep the financials on track.
Asset managers are integral to enhancing the value of a property and are vital to commercial property owners.
What Are The Roles That a Property Manager Plays?
It’s important for an investor to understand the functions and roles of the different individuals and teams that are managing their investment.
The property manager plays an integral role in the success of the portfolio management of commercial properties as well, but for different reasons.
A property manager may conduct some or all of the following tasks for their clients:
- Determines market rents
- Markets the available properties for rent
- Screens and interviews tenants
- Oversees the upkeep of the property and maintenance issues
- Fields tenant requests and inquiries
- Oversees construction crews for capital expenditures
- Compiles monthly profit and loss statements
- Compiles documentation needed for tax filings
- Oversees property inspections
- Handles tenant evictions
- Manages tenant move-ins and move-outs
- Conducts real estate market research
- Oversees third-party vendor functions and tasks
Real estate property managers are most commonly utilized in overseeing larger assets, but increasingly smaller investors are seeking the services of property management companies because they see the value they bring in managing these commercial assets.
How Does an Asset Manager Enhance The Value of a Property?
It’s critical that a property has good, steady (and growing) cash flow. That is where the structure of a sound lease comes into play. Commercial resident leases are important in protecting investors and residents alike and the asset manager is integral in making sure that the lease structure is being adhered to by the property managers on behalf of the property owners. There are many nuances to a lease and they are beneficial to real estate investors to help attract the best tenants, allow for rental increases where needed, and to keep vacancies low. The overall objective of a good lease is to maximize cash flow through rental income and other amenities.
Other Roles an Asset Manager Plays
Asset managers help to minimize vacancies by monitoring and managing rent rolls to help avoid an increase in vacancies. They minimize the risk of vacancies by being strategic about lease renewals, lease expirations, and month-to-month lease terms. This is all in an effort to maximize cash flow and minimize loss. It is important with all real estate portfolios to minimize vacancies as much as possible to keep cash flow robust.
Asset managers also analyze local markets and conduct market analysis. They are responsible for always understanding how the value of the asset is doing at any given time and to best do that they must be well-versed in understanding what competitors in the market are doing. Also, they are responsible for staying on top of rental rates in the area, tenant discounts being offered, and the average market vacancy rates so that they can stay competitive.
Real Estate Asset Managers are Critical to the Success of Your Real Estate Investment
There are risks with any investment, so that is why having a skilled, knowledgeable asset manager is so important with any commercial investment property. Without the expertise of an asset manager, your capital is more at risk. Asset managers are put in place to not only help you avoid a capital loss, but to help increase returns. An asset manager’s top job is to optimize the market value of the property for the investors.
An experienced asset manager is someone who understands all aspects of the financials of any given real estate asset they are tasked with managing. They not only understand how to sift through the numbers, but they can also determine how to reduce operational costs, increase efficiencies, and ultimately generate increased profits. Asset managers help the syndicators execute their business plan to bring the asset to its full potential. They are integral to the asset’s performance.
As you explore the world of real estate syndications as a passive investor, there is so much to learn and so much to understand. That’s why it is so imperative that you are working with a knowledgeable asset manager and a deal sponsor team with extensive expertise in the commercial space. This will help you to minimize your risk in the investment and maximize your returns.
We are not financial advisors and are not giving financial or investment advice. We always recommend that you consult with your financial advisor and/or tax advisor before making any financial decisions.
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