Prudent real estate investment companies seek to maximize returns while mitigating risks and protecting investor capital. Although there are many investment opportunities available to accredited investors, the focus of this article is on Asset Management and the key role that it plays in maximizing total investment returns. In this article, we’ll focus on some of the risks that are inherent in real estate investments and how successfully identifying risks and enhancing asset values, through proper planning and execution, can lead to better investment performance.
Mitigating Risks and Maximizing Returns
A key to mitigating risks and maximizing returns in real estate investment is to ensure that the investment manager has a proven track record of assessing those risks when acquiring an asset and properly managing major repair and capital improvement plans to enhance the value of the asset during the investment life cycle.
From Assessment to Acquisition
From our perspective, mitigating risks begins during the due diligence phase of an acquisition when property condition assessments are performed by third-party consultants. Although these expert opinions are valuable in the decision to purchase an asset, our team relies on the information provided in these assessments, “boots on the ground” inspections, and the collective industry experience and insight of the firm’s owners, property managers, and asset manager to assess both risks and opportunities. In many cases, assets need capital improvements due to deferred maintenance and unless the asset is a core investment opportunity the asset will likely require significant capital investment to add value. Once a decision is made to acquire an asset, we’ve found that it is imperative that the scope and costs are well defined and appropriate tools and techniques are used to effectively manage capital spending plans.
Communication Is Key
Through decades of experience, we’ve found that the keys to successful project management are to have a clear understanding of the scope and resources required, to budget appropriately, to align the project management effort to the complexity of the task, and to communicate throughout the process. An overriding objective is to ensure that project goals are met, while acknowledging that staff resources are limited, and we use a variety of tools to achieve project objectives.
Once the scope and budgets have been defined by our property and asset management staff, we employ various tools to schedule and track projects that range from simple to more complex. For relatively simple and lower-cost projects, critical path schedules are created and managed. This technique was recently used to manage a $300K roof replacement project, which was completed on time and within budget. In order to ensure these projects are delivered on time and on budget, it is imperative to utilize the best in class technological tools for critical path scheduling. Leveraging these tools has allowed us to deliver multimillion redevelopment and repositioning projects. The final key to success in delivering projects on time and within budget is to communicate both progress and roadblocks. Fortunately, our company has invested in IT infrastructure that allows greater collaboration between our teams that are geographically dispersed. A key feature of one of our new platforms is the ability to create a site for each capital project and to post relevant project information such as the project schedule, budgets, contracts, etc. The investment in this tool has enabled our team to be more effective at managing both small- and large-scale capital improvement projects across states and continents.
The HLC Equity Advantage
In summary, investing in real estate requires a commitment on behalf of the investor and we hope this article has been helpful by explaining our company’s focus on mitigating risks and delivering solid returns through careful planning and execution of capital projects during the investment life cycle.