Does business intelligence achieve transparency? The full picture and what it all means

My two most prized possessions from 1995, when I started my real estate career, are my HP 12C calculator and the Real Estate Glossary, published by Kenneth Leventhal & Company. While my trusty calculator continues to serve me well - the principles of calculating mortgages haven't changed much in 19 years - it's mind-boggling to think that the Glossary, for all its other virtues, does not include some terms that are bleached into the fabric of everyday business nearly two decades later, including transparency, investor portals, and business intelligence. This revelation spurred a deeper internal conversation: What do those terms mean? What forces moved them from obscurity to prominence in today's business world? Transparency: The Full Picture After the economy cratered in 2008, institutional investors across the world took significant write-downs on their real estate. As a result, investors required more financial and operational information and control. The term transparency became popular among companies seeking to give the investors what they want. In a broad sense, transparency means that entities with the right to receive information can get it readily. Two cornerstones that can help an organization provide the appropriate degree of transparency in their investor relationships are: (1) investor portals; and (2) business intelligence. An investor portal can help automate the delivery of information and recurring reports to investors, relieving institutions of the costs and labor associated with manual compilation and distribution. The last several years have seen increasing adoption of investor portals in real estate. These portals are typically hosted by a third party, because they require exceptional data security, but it looks like a page on a website so the experience is seamless to investors. The institution controls the information made available to investors. "We want investors to have ready access to the reports we publish - everything from the partnership valuation reports, which take investors through a hypothetical liquidation waterfall, to quarterly reports, K-1s and the annual letter from our founder," said Kevin Kujawski, chief financial officer of Menlo Equities, an investor, developer and owner-operator of commercial real estate in Palo Alto, Calif. "From a cost perspective, we anticipate that using investor portals will reduce the number of hard copies of reports that we need to issue. We expect investor portals will reduce administrative costs and save us time while improving the Investor experience." Greg Myers, managing director at Cortland Fund Services, an independent third-party fund administration provider headquartered in Chicago, said, "We use investor portals for capital calls, distribution notices and any other document we feel fulfills our obligation to our clients. Each investor maintains a unique login ID and password to access the portal. We can also track login activity, which ensures that we know whether or not the investors have opened up, and will fund, their capital call notice." Business Intelligence: What It All Means Business intelligence describes the meaning that emerges from raw data. However, business intelligence likely means something different to an asset manager than it does to someone raising capital for future investments. For example, an asset manager most likely is interested in property-level detail, whereas an investor might be concerned with the occupancy percentage for the entire investment portfolio. Business intelligence starts with analyzing the data collected and converting it into easily understood metrics; automation does this far more efficiently than a person could do it manually. The second step of business intelligence involves using it to enact change - both subtle and seismic - in an organization. Investor Reporting and Automation: Animating the Numbers Investment firms are finding that producing meaningful business intelligence for their constituents is most efficiently done by avoiding loading data into multiple software platforms in favor of automation, which helps them close accounting periods quickly and produce financial statements and other reports that are both attractive and informative. "The look and feel of investor reports is critical," said Leon Halperin, chief financial officer of Los Angeles-based multifamily real estate investment company Post Investment Group. "The margins need to look right, the font needs to look good. We touch these investors once a quarter and what they receive needs to look great, but also be thoughtful, insightful and useful. Most importantly, we want to be able to update these reports without having to contact our software vendor." Current State and Trends Many companies continue to hire more people to service a portfolio without recognizing the need for fundamental change in their back office operations. However, some companies are seeking to streamline that effort by determining the information required by their investors and visualizing a highly professional report that keeps them coming back with more capital. They seek solutions to help them efficiently deliver these reports in an automated fashion. Moreover, company executives generally desire easily absorbed, graphic-rich interfaces with meaningful information that communicate returns, business intelligence and current balances to investors. The most successful front office toolsets seamlessly integrate transaction and operations data without duplicate input. An emerging trend among investment managers is to require each of their third-party property managers to use the same software for property management and accounting. Investment managers may also require the third party property managers to perform all of their work in the investment manager's database. This way, the investment managers control all of the property-level information and can seamlessly transfer operations, accounting, billing and collections to a new property manager. In addition, this gives the investment management team access to information from the investor level to the lease level based on the transactions generated at each level of the ownership structure. In the private equity real estate universe, the most effective way to achieve transparency for investors is with the efficient delivery of business intelligence, financial statements and other important documents in an automated fashion via a self-service investor portal. The ability to provide services to investors efficiently, professionally and credibly can increase investor satisfaction and give clients a sense of higher investor value. Gregory Fuhrman is an industry specialist for investment management at Yardi, Santa Barbara, Calif.