The purpose of asset management, whether with real estate or any other asset, is to cultivate market value so ownership can increase its returns. Real estate asset managers focus on maximizing a property's value for investment purposes – not to be confused with real estate property managers, who handle the day-to-day activities related to a property's operations and physical structure.
Real Estate as an Investment Asset
Individuals, private companies, corporations and governments sometimes purchase real estate as an investment strategy. Real property can be bought, improved and resold for profit. Other times, it can be partitioned and rented or leased out.
Investing in real estate presents challenges that do not exist in capital markets. Property faces the risk of damage, tends to deteriorate over time, and often takes a decidedly more complex process to buy and sell.
Real estate asset management concerns itself with mitigating risks and promoting valuable improvements. It also navigates the complex legal and tax rules governing investment property in the United States.
Real Estate Portfolios
Diversification is important in real estate investments just as in traditional capital market investments. Large investors build portfolios of different types of property and in different markets. To make the case obvious, you can see why a real estate investor would not want all of his property in New Orleans during hurricane season, at least not without substantial insurance coverage.
Portfolio management involves asset allocation and selection informed by experts in property development and maintenance. However, most of the asset management takes place after the portfolio is chosen.
Asset Management Operations
Leases and rental agreements need to be structured in a way that attracts tenants, provides flexibility, reduces vacancies and limits liability exposure. Resources need to be apportioned strategically; badly managed resources negatively impact portfolio value.
In many cases, the asset manager selects a property manager. The asset manager specializes in financial matters, while the property manager specializes in the functioning of property. This relationship is a crucial portion of real estate investing, much like the way a board of directors must work closely with the CEO or COO of a corporation.
Goals of Real Estate Asset Management
The broad objective of asset management is to maximize property value and investment returns. This means reducing expenditures when possible, finding the most consistent and highest sources of revenue, and mitigating liability and risk, among other things.
In a sense, asset managers are entrepreneurial. Many of the decisions made in real estate asset management, such as negotiations, approvals and lease analysis, require risks be assumed and forecasts made. The managers who make the best entrepreneurial decisions with financial capital tend to be rewarded with higher profits and larger portfolios.