Technology offers new dimensions of transparency for long-term success

In a period of underperforming assets, investors are asking "why" much more frequently than they did even three years ago. Amid a difficult economy, uncertainty among investors, combined with new reporting regulations (such as FAS 157 and IFRS), places pressure on investment managers to deliver answers much more frequently, in greater depth, and with better assurance of reliability. And it's not just financial trial balance and income statement details that are under increasing scrutiny in the current economic climate. Investors' curiosity extends to such issues as expense balances, revenue decline, renewals and abatement terms - so investment managers need answers of increasing scope and complexity on any number of subjects. In addition to financial questions, investors and owners now want all the details about the property operations as well, meaning tenant and unit information: "What was the physical occupancy of the building last month? What is the projection for year-end? Which tenants are up for renewal in the next six months? What is the current tenant health? Provide a ranking of the top ten tenants by outstanding accounts receivable balance." In 2007, a trial balance import was the monthly update most managers received from property managers and joint venture partners; now they need complete transparency, all the way to the transaction level. Investment managers face a tremendous challenge in assembling, frequently and quickly, an array of information from widely disparate sources. Furthermore, drilling down to the root cause of an under-performing asset - to individual transactions and operational details - is virtually impossible in a manual system. Spreadsheets, which are labor-intensive and prone to errors, have proven largely inadequate for the task. Enhanced oversight and informed analysis Such demands are leading the investment management industry to adopt new best practices for managing investment information. These best practices focus on the idea that all levels of asset and portfolio data must be contained within a single repository, from which all required accounting and reporting can be produced. These solutions naturally become a technology issue, because today's business pace and expectations will not permit a manual process for portfolio transactions, accounting, rollups, valuations and investor reporting. Fairly recently, software providers assumed the burden of designing ERP-style systems for real estate that enabled all stakeholders - investors, fund and investment managers, asset managers, property operators and accountants - to share a central system that makes all relevant data readily accessible for accounting, reporting and analysis purposes. Many industry leaders have already adopted such systems, gaining tremendous advantages in terms of efficiencies, reliability and investor confidence. In light of the added pressures of today's investment environment, such systems have become a necessity for virtually all investment management firms with multiple investors and complex ownership structures. The full integration of such systems places financial, portfolio, performance and revenue analytics, along with any number of key performance indicators, within easy reach. Managers can analyze performance, generate valuations, and prepare years' worth of forecasts of individual assets' value and roll them up to the fund level. As changes are made to the underlying property database, the impact is displayed immediately at the dashboard and reporting levels. Managers can "see through" legal entities down to the individual asset and create customized tabular and graphical analytics and boardroom quality reports on configurable, interactive dashboards. Best practices in action A centralized investment management platform has enhanced oversight of the many different types of properties and leases in Dallas-based commercial real estate investment and development firm Westmount Realty Capital's portfolio. "It gives a common chart of accounts and displays in real time our cash flow and all transactions and delinquencies," said Heather Wyman, Westmount's controller. "Previously we often waited up to six weeks to receive a transaction report. Now, we get it immediately. And we can quickly generate reports for every level of investment and for all types of properties—only office buildings, for example. We perform bookkeeping for approximately 60 entities, including limited partners and general partners, and we can manage all of them from one platform." In today's economy, investment managers need every edge they can get. Westmount and other companies are making the most of the current challenging environment. They have adopted new investment management technology that leverage automation and data centralization for more efficient internal performance, accurate and frequent valuations, and increased investor confidence. Establishing a solid, reliable infrastructure that carries investors and managers through the entire investment cycle, even in a down economy - especially in a down economy - can be a formula for long-term success. Robert Teel is vice president of commercial and investment products for Yardi Systems, Santa Barbara, Calif.