Asset management is meant to cultivate market value so ownership can increase its returns, whether it has to do with real estate or any other asset. An asset manager manages assets on behalf of someone else, making important investment decisions that will help the client's portfolio grow. An asset manager also ensures the client's investment doesn't depreciate and that exposure to risk is mitigated. Doing this means watching the market, keeping up to date with research and trends, and staying current with political, financial, and economic news.
Asset managers can also be involved with real estate. These professionals operate with the same principles that an asset manager does in the financial market. They 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.
Now that you know the basics of asset management, read on to find out more about what role asset managers play in the real estate industry.
A real estate asset manager is different from a property manager, who deals with the day-to-day operations of a property.
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. At other times, it can be partitioned and rented or leased out.
While the real estate market can be complicated and isn't immune to economic problems—consider what happened to the housing market during the financial crisis—it is a popular way to invest, and can even be a hedge against the stock market. After all, you can't have your eggs in one basket, right?
There are different kinds of real estate that investors can hold in their portfolio including:
- Residential properties including homes and condominiums
- Commercial properties such as office buildings and apartment complexes
- Mixed-use properties that cater to both businesses and residential tenants
- Retail properties such as storefronts
- Vacation properties that are meant specifically for seasonal residence
Investing in real estate presents challenges that do not exist in capital markets. The 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 that consist of different types of property. They also make sure their holdings span a variety of markets. To demonstrate this point, 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. Choosing the right assets—in this case, properties—should be compatible with the client's investment strategy, risk tolerance, and investment goals, just as with any other type of investment portfolio. There are several factors to consider when choosing properties for the portfolio such as purchase price, maintenance costs, potential repairs, holding costs, and, if possible, a sales price in the future.
An important point to note with real estate portfolios, though, is that most of the asset management takes place after the portfolio is chosen.
Asset Management Operations
Asset managers in the real estate industry tend to specialize in particular types of property, regions, or operations. A very large role of the asset manager consists of market research, data analysis, and revenue forecasting.
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 the 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.
- Real estate asset managers make important investment decisions, ensure the client's investment doesn't depreciate and mitigate the client's exposure to risk.
- Real estate portfolios may include different types of properties in a variety of regions and markets.
- Asset managers in the real estate industry also hire key personnel like property managers, work with leasing agents, communicate with investors, and negotiate contracts.
Responsibilities of Real Estate Asset Manager
Most investors look for real estate asset managers who are experienced. The following is a list of the main duties of this professional:
- Ensuring the portfolio's returns are maximized
- Hiring key personnel including property managers
- Working with leasing agents
- Managing the cash flow from properties within the portfolio
- Negotiating contracts
- Communicating with investors and clients
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 to 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.