Institutional Real Estate, Inc.

NAREIM Dialogues Fall 2017

The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products

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Page 29 of 47

TAKING A CLOSER LOOK: Diane Vrkic, CEO and Founder, Waypoint A s the commercial real estate market continues to ebb and flow, many are left to speculate if we're nearing the end of the current market cycle. Owners and operators are looking to asset and property managers to uncover ways to protect each investment and drive net operating income (NOI). When rents soften in the market, it requires looking beyond revenue for other ways to generate value and often falls to operations to improve returns through expense reduction. Of course, everyone knows that there is value to be found within the operations expense side of your income statement. But until now it has been too costly to manage expenses on a constant basis with the same scrutiny as revenue because the data needed to identify the highest potential points of savings is usually spread across disparate systems and locations. Monitoring it consistently takes energy away from higher-impact activities such as acquisitions, leasing, and capex. The process for operating expense management today is cumbersome at best. Typically, asset and property managers have to extract the various data points from disparate and siloed systems and pull them into an Excel spreadsheet. With limited ability to normalize the information across assets and difficulty comparing amongst buildings and markets, managers don't have the financial insights or visibility needed to quickly identify value enhancing opportunities. Action only happens when glaring expense variances occur or when contracts are ending. In addition, this largely manual process is susceptible to human error. The results can lead to asset underperformance or – even worse – incorrectly viewing an asset as overperforming. Without the proper tools and/or significant investment in manpower and expertise, it's hard to know if a building is performing at its optimized level and delivering the highest NOI possible. Quite simply, the return on investment for investigating operating expense reduction has been low. In this article we want to highlight how you can generate significant return on investment with a streamlined process for optimizing performance - and show how even small improvements in operating efficiency can result in millions of dollars of additional value created. T H E VA L U E O P P O R T U N I T Y In the US commercial real estate industry, we estimate that total operating expenses are in excess of $650 billion 1 . A 1% decrease across the entire CRE industry would mean an annual savings of $6.5 billion in operating expenditure and generate an increase in net asset value of almost $105 billion 2 . However, as mentioned above, operating expense reduction is often a lower priority given the complexity, limited tools and opportunity costs associated with the process. The fact is, though, that very small percentage decreases in operating expenses can translate into millions in value creation. How to Gain Substantial Asset Value With Improved Operating Expense Reduction

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