Real Estate Asset Management Definition
Real estate asset management is the process of analyzing real estate investment assets in order to develop effective economic strategies that mitigate risk exposure and maximize investment returns. Real estate asset management entails monitoring performance and making forward-looking decisions (such as value-add improvements, buy, sell, hold, refinance, etc.) on the behalf of investors to increase property values and pursue the best risk-adjusted returns.
Asset management is the step after an investment decision — or in the world of real estate investing, the step after the “closing of the deal.” Why is asset management so important to consider for individual investors? There’s a simple reason: in the world of passive real estate investing, the degree to which asset management is being practiced may vary greatly, and this can potentially have an impact on returns.
In a newly released report, PwC, a global leader in corporate sustainability, forecasts that alternative asset classes, including private debt and private equity, are expected to double in size by 2025. This trend indicates the growing importance of asset management for real estate portfolios and beyond. But how can individual investors step confidently into the space?
Real estate asset management services are critical for individual investors who may be newer to commercial real estate. While individuals have never had more access to private-market real estate, dedicated asset management is a must for individuals to confidently and passively invest in real estate. As an LP investor, it is important to have confidence in the GP (or investment manager) and the platform who sourced the investment, particularly the underwriting and ongoing asset management services that platform may provide.
EquityMultiple is not just a “posting platform” for commercial real estate deals. From day 1, real estate asset management has been central to what we bring investors. Keep reading to learn how teams like ours care for the life cycle of your investment, from origination to disposition.
What is Real Estate Asset Management?
Real estate asset management is the act of analyzing real estate investment assets in order to develop effective economic strategies that mitigate risk exposure. This is traditionally done by:
- Sourcing lucrative real estate investments
- Reducing operational, maintenance and closing costs
- Forecasting and mitigating associated risks
- Constructing a sound financial plan for each asset
Consistent updates concerning investors’ assets are given to sponsors to prioritize and maximize portfolio returns. A well-managed asset has the potential to become scalable and generate uncorrelated returns over time.
A poorly managed asset, on the other hand, can potentially lose its ability to generate significant returns and even begin to become a net expense. The differences between significantly positive NOI (net operating income) and a net loss can be quite marginal; over a large number of units and months of an investment, the combined effect of numerous small factors can be the difference between a successful investment a losing investment. Just a few examples of these variables that real estate asset managers pay close attention to:
- Leverage and debt service coverage
- Property management cost and quality
- Insurance cost
- Utilities and other costs that the sponsor (rather than tenants) may be responsible for
Ultimately, asset management in real estate investing is largely about understanding and managing risk.
“While you may associate the term with an investment advisor managing your portfolio of stocks and bonds, asset management means something slightly different at EquityMultiple, where investments are made into discrete, privately held commercial real estate assets.”
— EquityMultiple’s Take
Phases of Real Estate Asset Management
The life cycle of real estate investment can be broken down into three key phases:
- Acquisition phase: Once sponsors acquire the asset, an asset manager can help craft an economic strategy aimed at maximizing returns.
- Holding phase: Sponsors and asset managers will work together to monitor the health of the investor’s asset. Asset managers can apply their expertise when navigating through legal requirements and connect sponsors with the best resource for managing and maintaining the investment.
- Disposition phase: This is when asset managers, sponsors and investors convene to determine the best course of action to take when or if the asset is sold. The asset manager can also help facilitate the cash flow into a new asset.
An asset manager will be responsible for touching base with sponsors or investors during the lifetime of the asset.
A video collection of assets managed within EquityMultiple’s portfolio.
What Does EquityMultiple’s Asset Management Team Do?
Not every real estate platform features an in-house asset management team. EquityMultiple does. Part of our core value to individual real estate investors is making the process easy and transparent. In short, EquityMultiple’s Asset Management Team works to maximize investor returns and to ensure timely, transparent asset reporting.
Here are a few ways that we deliver on this promise:
- Each investment that closes is assigned a distinct owner from our Asset Management Team.
- Asset managers monitor the financial health of an investment, anticipate market and property-specific trends, ensure that sponsors are implementing the appropriate asset strategies, and ultimately make decisions on behalf of investors to maximize returns and minimize risk.
- Asset managers often influence sponsor decisions because of long-time relationships and trust. In some cases, asset managers may be able to effectuate better outcomes by providing support to a sponsor or by connecting them with a relevant third party to more effectively consummate the business plan, should the need arise.
- If necessary, the Asset Management Team puts into play legal rights available in our JV agreements with sponsors, such as major decision rights, where the sponsor needs our consent to make decisions such as changing property managers or selling the property.
- In some cases, asset managers negotiate on behalf of investors with sponsors or outside parties to protect investors’ interests.
The Asset Management Team operates not just at the asset level, but also at the portfolio level. Some practices the AM team adopts to monitor the financial health of our portfolio are:
- Through quarterly reporting, reviewing each asset’s financial performance, including examining cash availability and vendor payables on the balance sheet, trends in occupancy and rates and delinquency, rises or spikes in operating and capital expenses, and in value-add or construction investments, and comparing the pace and costs against budget.
- Conducting an annual review of each asset by reevaluating financial returns based on past performance and updating assumptions on future operational and value-add plans, as well as changing market conditions.
- Maintaining a watchlist of underperforming or non-distributing investments in order to best direct focus and resources.
- Monitoring upcoming debt and rate cap maturities so we can proactively alert sponsors and work with them on taking the appropriate action, including loan extension, refinance, or sale.
Real Estate Asset Manager Responsibilities
The entire life cycle of your asset is taken into consideration when a real estate asset manager begins to craft a strategy for your investment. A typical real estate asset manager will have years of experience investing in the respective asset class and possess the relevant expertise necessary to maximize portfolio returns.
Generally, asset managers develop and execute economic strategies on behalf of investors, but this can differ depending on your investing avenue. Their priority is to manage real estate portfolios and make adjustments based on market conditions.
For instance, some commercial real estate investment platforms like EquityMultiple possess a team of asset managers who communicate directly with sponsors so that accredited individual investors can continue to invest passively.
Develop and Revise Financial Strategies
During the first phase of asset management, asset managers will sometimes perform a stress test on investor portfolios. This analysis can help everyone involved understand the strengths and weaknesses of the real estate assets within the portfolio.
After the analysis, real estate asset managers conduct market research and begin tailoring investment strategies to each asset. Facilitating sound decision-making on behalf of individual investors is their top priority.
“The key to protecting an investor’s investment is anticipating market changes through on-the-ground resources and direct oversight of each asset.”
— Pauline Mang, EquityMultiple Asset Management
As the life cycle of the asset continues to grow and develop, revisions to the initial financial strategy may be necessary. The real estate asset management fees that investors are responsible for contribute to the asset manager’s ongoing strategizing.
Depending on the investment arrangement, real estate asset managers will continue to communicate with investors, sponsors or property managers to implement economic changes as necessary.
Manage, Maintain and Market Properties
After your investment property is acquired and a financial strategy has been tailored to your asset, real estate asset management teams can facilitate the following tasks:
- Hire property personnel
- Negotiate contracts
- Facilitate renovations
- Recommend upgrades
- Communicate with contractors
- Market real estate during disposition
If applicable, real estate asset managers can even mock up potential rental agreements on behalf of investors and work with a property asset manager to implement new changes in lease agreements and other contractual obligations.
From origination to disposition, real estate asset managers are integrating their investing experience into investor portfolios with their boots-on-the-ground presence. Healthy real estate investment management can give passive investors peace of mind that their portfolio is in capable hands.
Keep Track of Cash Flow Management
Cash flow projections are dependent on a variety of factors. It is often the real estate asset manager’s duty to remain aware of these variables in conjunction with current market trends.
Quarterly updates are sometimes given to investors to help them and their sponsors make the best economic decisions. On a daily basis, however, asset managers keep investor goals in mind when making decisions.
With investor permission, for example, an asset manager could potentially facilitate a value-add renovation to a commercial property within the investor’s commercial real estate (CRE) portfolio.
Real Estate Asset Management vs. Property Management
| Real Estate Asset Management | Property Management |
| Create and apply financial strategies to the investor’s asset(s) | Screen potential tenants for the property and deal with unruly occupants |
| Generate cash flow reports based on current market trends | Collect rent from current tenants and explain lease agreements |
| Communicate consistently with sponsors | Work with contractors to keep property healthy |
If you happen to be new to learning about real estate portfolio management, it is worth pointing out that real estate asset managers are not to be confused with property managers. In general, asset managers handle the economic side of asset care, while property managers deal with the often physical day-to-day tasks.
Real estate asset managers and property managers differ in a number of ways. Asset managers overseeing real estate investments create and apply financial strategies to the investor’s asset(s), while property managers work on the ground to manage and maintain properties on behalf of the investor.
Investors who work with a managing entity like EquityMultiple can benefit from both manager types while building their real estate portfolio. While real estate asset managers are busy generating cash flow reports based on current market trends, property managers are collecting rent from your tenants.
Real estate asset managers largely communicate with sponsors; however, investors can also be updated with quarterly reports highlighting the latest changes regarding their assets. Communication between sponsors and property managers can also be facilitated by real estate asset managers, allowing investors to remain passive.
Commercial Real Estate Asset Management
Real estate asset management services are especially beneficial for sponsors who are liable for commercial properties like large multifamily apartment complexes. For sponsors, multiple tenants mean multiple lines of communication and cash flow to keep track of.
Although sponsors and property managers are responsible for the day-to-day operations, asset managers can update accredited investors on the performance of their assets and oversee KPIs in an effort to maximize potential returns. This may include analyzing rent rolls and ensuring that lease-up strategies, marketing, or other elements of the business plan are going as planned and on schedule.
The asset manager can also generate quarterly cash flow reports to help the sponsor and investor make well-informed decisions when strategizing their CRE investment opportunities during the asset’s holding phase.
Update: Real Estate Asset Management in 2024 and Beyond
With capital markets in flux and debt service challenging many operators, active asset management is more critical than ever. If you are investing passively in real estate, be sure to carefully consider the asset management resources that will be put toward your investments.
With the future of interest rates uncertain, it’s especially important that the asset managers behind your investment have extensive capital markets experience.
What is a Real Estate Asset Manager?
We have discussed general duties and responsibilities. What does an actual real estate asset manager do on a day-to-day basis? It varies by fund or organization. In many cases, the following tasks are performed daily:
- Analyzing market data and trends to inform strategic positioning and pricing of properties
- Developing detailed business plans for each asset with defined performance targets
- Maximizing portfolio returns through optimized leasing, marketing, and expense control
- Monitoring and reporting comprehensively on the financial performance of assets to stakeholders
- Recruiting, overseeing, and managing on-site property management teams
- Evaluating and executing value-add opportunities like capital improvements or refinancing
EquityMultiple brings individual investors a robust team of dedicated asset managers from institutional backgrounds. Each asset manager is assigned a portfolio of assets from the time of investment closing through exit.
EquityMultiple’s asset managers will stay in lockstep with our sponsor partners throughout the lifecycle of each investment and collaborate to pursue the best outcomes and protect investor interests. In so doing, real estate asset managers at EquityMultiple review financial statements and rent rolls, monitoring performance of each asset in the portfolio.
If challenges arise, EquityMultiple’s Asset Management Team will work proactively, where possible, to assist in mitigating risks and achieving positive outcomes. In some cases, this means reacting to current dynamics in capital markets. Pauline Mang of EquityMultiple’s Asset Management Team discusses one such strategy in this video:
What are the Most Important KPIs for Real Estate Asset Managers to Track?
KPIs used by real estate asset managers are typically S.M.A.R.T. (Specific, Measurable, Attainable, Realistic, and Time-based). Here are a few of the most common ones:
- Net Operating Income (NOI): The total income minus operating expenses, which measures the property’s fiscal health and profitability.
- Occupancy and vacancy rates: These are monitored and compared to market averages to assess the property’s overall performance.
- Tenant turnover: “Tenant turnover” may encompass the lease renewal rate, the tenant turnover time, and the tenant acquisition cost, all of which can potentially impact a property’s profitability.
- Certificate of Insurance (COI) compliance: Tracking tenant and vendor COIs can ensure compliance and thus mitigate risk.
- Work order efficiency: Measuring factors like work order completion time, submission methods, tenant satisfaction, and engineering productivity can improve both operational efficiency and the satisfaction of tenants.
Bear in mind that asset managers may adjust the KPIs they use to align with changing objectives.
The Bottom Line
Asset management is core to the practice of real estate investing. While LP (passive) investors do not make decisions throughout the course of a given investment, vigilant asset management can help to anticipate risk, exert control, and effectuate positive outcomes. That is why EquityMultiple practices asset management on behalf of all of its individual investors, and for each investment it closes on the platform. In fact, EquityMultiple brings investors a dedicated, in-house Asset Management Team that has experience with all types of real estate. This practice stands in contrast to other real estate investment platforms, where you, as an individual investor, may not have a third party working on your behalf throughout the course of an investment.
Asset management in real estate is a key piece of the puzzle. Be sure to understand the degree and quality of asset management before making any passive real estate investments.
FAQs — Real Estate Asset Management
What type of asset management does EquityMultiple do on behalf of investors?
Unlike some other investing platforms, EquityMultiple employs an in-house asset management team whose mandate is to maximize investor returns and mitigate risk of principal loss. Each time an investment closes (i.e. investor capital is routed to the sponsor) an asset management associate is assigned that particular asset. While our Asset Management Team cannot guarantee any particular results, we work closely with the sponsor of each underlying investment to ensure that investors are kept apprised of asset performance. In some cases, our experienced asset managers may be able to effectuate positive results or mitigate risks by intervention, or by taking a more proactive approach, including workouts or restructurings.
Asset performance reporting surfaces at least monthly via the My Activity feed in the EquityMultiple platform.
How are asset management fees typically structured at EquityMultiple?
It depends on the investment, but EquityMultiple generally charges low fees of 1% or less to investors. This is facilitated by requiring real estate operators and sponsors to pay fees (acquisition, disposition, etc.) from the investment proceeds or their share of profits. Some offerings are fee-free for investors due to being completely covered by the sponsor. Specific fee details are provided in each investment product’s associated documents, although they generally break down as follows:
- Alpine Notes (short-term notes): Fee-free to investors.
- Direct Investments (distinct properties):
- Lending: Typically a 1% annual asset management fee.
- Equity: Typically a 1% annual fee or $250 flat fee, sometimes paid by the project sponsor making it fee-free for investors.
- Fund Investments (diversified funds): Similar fee structure to equity investments.
What type of asset management do real estate crowdfunding platforms provide?
Real estate crowdfunding platforms offer varying degrees of asset management, from none at all to a dedicated team (such as EquityMultiple employs). When considering a new real estate investing platform, be sure to do your diligence on whether and how much asset management your investments will benefit from. Note as well that platforms provide varying degrees of underwriting and initial structuring of investments.
What type of results can be achieved with active real estate asset management?
Please log in or create an account to view a detailed report of EquityMultiple’s track record. You can also review our latest case study, An Empirial Study: Real Estate Portfolio Diversification, for tangible examples and statistics on how diversification has played out for EquityMultiple investors in the past.
