5 Steps For Strategic Planning For Successful Real Estate Portfolio Management

In a corporate environment, strategic alignment happens when all elements essential to a business, from market strategy to organizational structure, are arranged in a way that they support a company's long-term goals. Successful real estate portfolio management involves overseeing a selection of properties that meet the long-term financial goals of the corporation. Portfolio management may require strategically leasing, buying, selling, and analyzing properties and other assets to meet the long-term business objectives of an organization.

What is Real Estate Portfolio Management?

Portfolio management is the art of overseeing properties that meet the long-term financial objectives of a client, company, or institution.

Portfolio management requires weighing the strengths and weaknesses, opportunities, and threats across the full spectrum of each real estate decision. The goal of portfolio management is to balance change initiatives and business-as-usual while optimizing the client’s operating costs and business flexibility.

Proactive strategic portfolio management ensures that an organization can choose the best properties for success. It refers to the centralized management of a portfolio to achieve specific strategic objectives.

What is the Role of a Portfolio Manager?

A portfolio manager helps an individual, company, or institution decide on the best available property plans to assist their business needs. This can be investing in a property ownership where they are the owner or leasing a property for their company.

As a portfolio manager, IAG Commercial is responsible for assisting clients with market knowledge and managing the plan.  A portfolio manager will help a client decide what marketplace options exist for their client and assist with the execution of the clients’ decisions.

Successful Portfolio Management Objectives

Successful portfolio management strengthens the strategic alignment of real estate decisions and projects to prevent initiatives that do not support the corporation. Also, it enhances the overall economic value of each location to improve the return on any investment made. These steps are focused on the tangible corporate benefits of strategic investments. When decision making occurs on the executive level, all properties and projects become based on company-specific criteria. Successful portfolio management includes looking at how each real estate asset fits within the corporation's long-term goals and how to optimize the overall value to the company.

What Are the Steps for Successful Portfolio Management?

Strategic Real Estate Portfolio Management requires deciding where best to focus an organization's resources to meet strategic objectives of the supported business unit. Analyzing performance with defined performance measures s ensures that the strategy stays aligned. Items to consider include:

1.    Determine the Needs of the Corporation

By clarifying the interest, priorities, and significant strategic concerns of a corporation, portfolio management focuses on the needs of the corporation as dictated by its executive branch. Knowing the needs of the corporation is often the difference between building an active portfolio vs. an academic exercise in futility and knowing what the corporation needs to provide the focus necessary for data collection and analysis.

2.    Determine the Strategic Initiatives

The primary purpose of this step is to make sure the company's objectives support the strategic initiatives designed to help the organization achieve its real estate goals. Strategic initiatives develop when the strategy is analyzed, and objectives are confirmed. The new strategic initiatives identify opportunities for improvement, key projects and a guideline to prioritize, evaluate, and execute on an agreed upon strategy.

3.    Identify Specific Opportunities for Investment or Leasing.

Companies view leasing vs. ownership differently from one organization to the next.  Ultimately, it usually comes down to return on a company’s cash investment.  If a company feels they will achieve a higher return on cash investment on by reinvesting it in their business vs. the real estate, they most likely will choose to lease space vs. own.  

However, sometimes companies choose to own because the cash return makes sense in terms of investment diversification.  In addition, usually companies will choose to own if the real estate asset is core to their business.  Therefore, many manufacturing companies choose to own facilities vs. leasing.  The cost of the shop floor production assets can far outweigh the cost of the real estate.   Control of the real estate asset can be critical in this environment. Proper screening new facilities before adding them to the real estate portfolio leads to more effective decision making and an opportunity to maximize the return of your investment. The next activity is to create an action plan for facility investment and a risk assessment.

4.    Buying a Real Estate Investment

After a decision is made to proceed toward a purchase, use a decision framework to select the location and property that has the potential to produce the most value and align best with the organization's strategic initiatives. A key input in building the corporation's real estate portfolio includes an overview of all the organization's programs and projects. Information about the budget, resources, risks, business benefits, and links to strategic objectives is compiled. Based on the organization's capital investment goals, the organization should select and prioritize properties that fit the corporation's vision. The organization also needs to make sure that enough capital is available for this investment. Once properly reviewed and agreed upon, the organization's executive management should then approve the acquisition.

5.    Regularly Analyze the Real Estate Portfolio

Most companies do not properly plan for the annual upkeep on a property.  While depreciation may not be a direct cost, it is an indirect cost that will negatively impact a cash flow if a company does not properly set money aside for upkeep.  IAG Commercial recommends that clients annually review properties to track their deferred maintenance potential risks, and issues, which enable enhanced insight and decision-making. For key assets, a sliding three-year capital improvement plan should be a component of the annual budgeting process.  The information obtained from these capital reviews allows an organization to include risk feedback in the portfolio process and to take corrective actions on real estate investments. Organizations need to focus their analysis efforts on the capital requirements and business risks in an organization's efforts to manage their bottom line and ensure a better return on their investment.

When conducting portfolio analysis, it is vital to synthesize the information and make it easy to understand. Analysis means little if it doesn't lead to an understanding and improved strategic conversation about a corporation's real estate investments. The five steps above are a guide to companies who want a proactive real estate portfolio management strategy. It must also be an ongoing process.

If your company is new to developing a real estate investment portfolio, we recommend you bring on an expert from IAG Commercial who can advise you. The right portfolio manager can help you streamline your strategic planning, improve analysis, and facilitate executive discussions that assist with investment decisions.


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