Advice and Opinion

Effective property asset management

As with human beings, investment properties have hierarchy of needs which includes operational and strategic involvement of both the asset and property managers.

Maslow’s theory suggests that the most basic level of needs must be met before the individual will strongly desire (or focus motivation upon) the secondary or higher level needs. As with Maslow’s theory of human nature, the same can be applied to the specialised management approach adopted by Broll.

According to Heidi Rix, Broll Property Group: Director for Investor Services, asset management is the key to success and this is done by way of aligning the interests of the property investor, the tenants and the manager utilising a blended recipe of skill, experience, knowledge, relationships and proactive operational efficiency including establishing proper checks and balances in the property operation process.

Rix explained that while the holistic real estate management solution offers a hierarchy of needs, not one aspect of such hierarchy is more important than the other – each being both mutually exclusive and inclusive.

At the bottom of the pyramid of the real estate hierarchy of needs is the solid foundation of Facilities Management which includes building, property operations and maintenance, tenant service requests, on-site management, staff and procurement, health and safety and environmental aspects; all of which provide the safe, secure and comfortable commercial environment for all users of the respective property.

This is followed on the next level of the hierarchy by property management which includes services such as lease administration, rent and service charge management, tenant relationship management, accounting, staff, human resources and marketing for example, all of which address the needs of contractual commitment fulfilment and relationship building.

Further up the pyramid, is asset management which includes aspects such as market intelligence and research as well as property sector specifics, projections, appraisals and capital projects, strategic leasing and renewals planning, value add initiatives and income risk mitigation; all of which address the strategic long term planning and investment growth of the asset under management.

The top of the pyramid, said Rix, is investment or fund management which focuses on investor relations, the property portfolio strategy, the buy, hold, sale of properties and looking at the overall total returns of the property investment as well as aspects of gearing and financial structuring for property transactions.

She pointed out that the right holistic management solution is important in unlocking the property investment value and property managers need to have business intelligence skills in order to best manage the property and investment asset. In other words, managers need to be aware and keep abreast of what is happening in the economy, the property industry and its respective sectors.

Strategic relationships with both tenants and management partners, together with on-going research become crucial and permit the competitive advantage in this instance.

Speaking at the 5th Annual State-Owned Assets Supervision and Administration Conference that took place in September in Cape Town, Rix said in asset and property management, the management strategy, approach and the means must accomplish the client’s short, medium, long term and ultimate investment objectives.

This year’s event among other things focused on challenges facing public sector asset management.

“The development of a strategic plan lies in understanding and adapting to the investment environment and the client’s objectives, needs and requirements of the property or portfolio investment.

“Management is never static and should be proactive and dynamic,” said Rix.

The development of the strategic plan involves the process of strategy development, continuous re-evaluation of the existing strategy, implementation of the formulated strategy, recommendations on what may assist in the management of the property, evaluating alternatives to support and further enhance the property management strategy, continuous monitoring and measuring of the strategy implementation and research which enables the asset or property manager to know what is happening in the specific sector and the real estate market, according to Rix.

Savvy management

Rix said business intelligence and true value add is about constantly “asking the why” while successfully implementing the “how”.

In addition, successful managers prepare and implement a thorough risk matrix for management of the portfolio that addresses relevant risks to the core, non-core, and value-add and opportunistic contributors to the portfolio.

Such risks should be directly linked to income and growth drivers of the respective assets and may include socio-political risks, tenancy type risks, economic and nodal risks, financial and occupancy cost risk, credit risk and occupier demand changes and how these will/can impact the management of the property going forward.

Rix pointed out that some of the indicators that drive property asset performance include competitor, economic, financial, industry, infrastructure, market, physical and social indicators.

Essentially, effective asset and property management is about understanding property phases and bubbles – here, savvy managers can spot emerging trends that could either pose opportunity or risk enabling them to amend their strategies accordingly.

Public sector asset management

Wanda Phiri, Programme Director at MILLA SA organisers of the State–Owned Assets Supervision and Administration Conference said the main challenges facing the public sector asset and property management are reduced management budgets, low economic growth levels and lack of expertise.

“Public agencies are mandated to deliver services by stretching resources as far as possible in an environment where revenues are generally inadequate and infrastructure assets are aging,” noted Phiri.

He said for many years, government departments relied on traditional tools to manage assets, inventory and maintenance processes but today’s local government business has changed.

It is therefore critical that processes are efficiently streamlined and that maximum value is derived from the assets in a sustainable manner.
Phiri said an integrated approach using preventive maintenance, work order, inspection, condition assessment, research data and asset valuation capabilities is required in order to better manage public assets.

“Advanced modern technology plays a vital role in managing government assets as this will mark a turnaround strategy to solve these public sector asset management challenges.

“A technology infrastructure approach will allow for the addition, change, upgrade and/or modification of system solutions being used.”
The Annual State-Owned Assets Supervision and Administration Conference is a platform that addresses broad and comprehensive approaches to public assets management, he said.

South African property market

Asked where the South African property market is at currently, Rix said although economic indicators are lagging the property indicators, they are fast catching up.
However, she said when economic indicators catch-up, this will have consequences for debt servicing, for example, the credit expansion is likely to lead to credit crunch and over-leveraged investors and consumers are likely to default on their debt repayments.

Other factors impacting on the property sector include labour unrest, increasing cost of living, high unemployment levels, limited or reduced disposable incomes, increasing municipal consumption charges, infrastructure challenges, currency fluctuations and rising interest rates.

Rix pointed out that the listed property sector is on a strong acquisition trail and competition for prime assets has resulted in highly competitive yield levels, which could potentially be unsustainable versus cost of capital. There is also an increasing yield differential between the listed and unlisted / institutional property sectors, she added.