Institutional Real Estate, Inc.

NAREIM Dialogues Spring 2018

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 19 of 51

NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS 18 W hile these innovations are impressive, the most critical and highest return opportunity for most real estate investment firms is more fundamental and closer to home: Company infrastructure. The commercial real estate industry has typically viewed infrastructure and internal systems as cost centers that would never generate revenue. Investing the minimum amount required to run the company was considered smart business. Today, a robust infrastructure is anything but optional. Enhanced processes, operations and information systems can create competitive advantages that positively impact the bottom line. Infrastructure can help a company secure capital, expand into new markets and attract talented employees. The stakes are high. In a competitive market with few easy deals on the horizon, commercial real estate firms that continue to treat infrastructure as an afterthought are not likely to prosper in the near-term or survive in the future. LATE TO THE GAME Cost is not the only reason commercial real estate is lagging far behind other industries in implementing process and technology improvements. Many real estate companies were founded by an enterprising individual with a vision, ability to shoot from the hip and an endless supply of determination and hard work. These companies thrive on entrepreneurial energy that rewards accomplishing as much as possible with as few resources as possible. If five people using spreadsheets can get the job done, why invest in additional staff or systems? Commercial real estate prides itself on being unique and entrepreneurial, which has led to the adoption of a figure-it-out- as-you-go mindset. While this approach can be useful for some aspects of the business, the actual process of buying, managing and selling assets should be streamlined and efficient. These are the industry's "manufacturing processes," and manufacturers cannot afford to "wing it" or reinvent the wheel each time they make a widget. To be fair, real estate companies' lack of infrastructure investment also reflects a shortage of systems and information services designed for the industry. The common response has been to use spreadsheets and word processing programs to track sizeable investment portfolios at both the individual property and overall portfolio level as well as to prepare complex reports. That is no longer necessary. There has been significant growth in systems and services designed specifically for tracking and managing investments, properties, assets, investor relations and more. According to Douglas Bibby, President of the National Multifamily Housing Council, "Three years ago there was $459 million in private equity and venture capital funding dedicated to real estate technology, at year-end 2016 there was $2.7 billion." (Source: GlobeSt, "3 Big Multifamily Predictions for 2018," 1/22/18). Expectations for 2017 tech funding are even higher. ATTRACT LOYAL CAPITAL Securing a dependable capital base is one of the most significant reasons to invest in a company's infrastructure. Institutional investors are looking far beyond track record performance and spending more time underwriting the entire organization. They will look for and place capital with firms that can respond quickly to information requests and have clearly defined procedures, succession plans and state-of-the-art cyber security systems. Although other capital sources may not investigate as deeply, reporting and transparency remain as important as investment returns. If this seems overstated, consider the following: A leading institutional real estate fund generated returns well above its initial target, yet most of the investors opted out when the company tried to launch a follow-on fund. Why? Inadequate reporting. The company could not provide detailed back-up information about the fund's performance in a timely manner. Impressive returns were not enough. Investor requests for proposals and quarterly reporting requirements offer valuable insight into their priorities. In addition to fund-level data, investors want comprehensive, granular performance data, including attribution analyses that illustrate each property's role in a portfolio's performance. This is nearly impossible using the antiquated systems and spreadsheets that are standard for most companies. Investing in internal processes and systems is key to meeting investors' information demands and ensuring a dependable capital base. Firms can now invest in products that manage and report real-time, asset-level data in ways that even the most sophisticated spreadsheet falls short. NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS 18 SURVIVAL DEPENDS ON A STRONG COMPANY INFRASTRUCTURE Peter DiCorpo, Chief Operating Officer, Waypoint Residential High-rises built by 3-D printers. Artificial intelligence that manages leases, loans and investment transactions. Robots that lay bricks. Welcome to real estate's high-tech future. (Source: The Real Deal, "Real Estate's Tech Disruptors," 2/1/18).

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