Today’s Commercial Real Estate Deals Require a Strategic and Analytical Professional to Manage Risk and Create Value.
As the complexity of commercial real estate deals has increased, so too has the realization that a professional with an eye on local and macroeconomic trends is needed: an asset manager. This strategic thinker possesses the mindset and skill set to manage and mitigate risk, engineer cash flows, and collaborate closely with property managers to boost values of properties and portfolios.
Asset management professionals draw from a range of disciplines, including brokerage, property management, business, economics, finance, and accounting. In addition, they serve all sectors and levels, from sole proprietors to Wall Street portfolio managers. As a result, the asset manager role is shrouded in an unnecessary layer of confusion.
“The work of an asset manager is not new,” says Blaze L. Cambruzzi, partner at Pennsylvania-based True Commercial Real Estate, “but the concept of a professional doing it may be what’s new.”
The asset management role has its roots in 1980s tax reform and post 9/11, when low interest rates pushed fixed-income investment into mortgage-backed securities, says Cambruzzi. A self-described “data analytics personality” and real estate professional with commercial brokerage and acquisitions experience, Cambruzzi left his position when the 2008–09 financial crisis hit, earning a master’s degree in real estate financing and focusing on where the industry was headed. Paradoxically, he observes, many real estate master’s programs are under the school of architecture despite a major industry pivot: the placement of capital directly for investment not from real estate developers and construction firms but from Wall Street equity and debt. “You need a different model and approach – above and beyond the property manager — to sustain that,” says Cambruzzi, who also holds a master’s in business administration, “and that is at the asset management level.”
An asset manager brings a level of engagement to a property that exceeds what one would consider typical for a property manager collecting rents, paying the bills, and administering leases. For example, a property manager might see a tenant and property coming up for renewal and simply sign the tenant to another five-year term. “As an asset manager, I have to look at a loan coming due in 2023–24. If I take this five-year lease, that term will come due six months after my refinance, so when I go for refinancing, I might not get the best rate. Also, I have a bump scheduled for a year after I refinance. If I can move that bump up a year, that’s when the appraisal will happen and the bank determines the building’s value, and that’s to our benefit.”
From Renee Savage’s vantage point, the asset manager is the analytical problem solver. Savage, CPM, CCIM, is secretary treasurer for the Institute of Real Estate Management and president of San Diego–based Casavida, a property management company with a portfolio of boutique residential properties. A property manager looks at the one- to three-year time frame on a property, she says, while the asset manager is looking at five-plus years. “It’s a different lens,” acknowledges Savage. While she delineates the roles, Savage does not discount the property manager role, “because the property manager can make or break the asset manager’s success, and part of that asset manager’s role is to explain the long game.”
Savage describes herself as “more on the operational asset manager side, that step above the property manager.” She analyzes capital improvement projects—will they create value or maintain the asset at its current value?—and ensures that rental rates are properly set and the property manager is controlling expenses.
An industry trend is causing an overlapping of roles, Savage says. “You’ll hear a property manager tell an owner, ‘If I spend $20,000 at turnover on an apartment unit, I can get X many more dollars in rent and your payback comes in under X years.’ That is asset manager thinking, and property managers who’ve been in the business a long time are picking up that train of thought, so we are seeing blurred lines.”
When Cambruzzi launched True Commercial Real Estate four years ago, the company operationally split asset management from property management. “Our [asset management] contracts are with property owners and investors,” he says. Still, he recognizes that most clients in secondary and tertiary markets will not bring on an asset manager in addition to their property manager. “In reality, it ends up being a function of your property management service, so you might charge a premium to do asset management.”
John Viggers, CPM, CRE, entered real estate after his early years running a small-town bank and being a stockbroker, an experience that gave him deeper financial perspective. When the 2008 financial crisis hit, Viggers was elevated to president of asset management for NAI Global and won contracts with three national banks to manage their distressed properties. In that role, he and his teams established local brokerage and property management to stabilize and prepare assets—shopping centers, office, and multifamily properties—for disposition.
Viggers, who is currently senior vice president, Cushman & Wakefield Iowa Commercial Advisors, West Des Moines, Iowa, notes, “Roles and distinctions between property management and asset management are being blurred as managers are being tasked with so many roles and duties due to the growing complexity of our industry and deal making.”
“Quality asset managers need to think strategically and look, breathe, and act like an owner. They need to have that CEO mindset, because, ultimately, they are the boss of that asset,” Viggers says. “They report to an investor or a board of directors, but they need the mindset that ‘I’m responsible for a bunch of businesses that happen to be commercial properties and my job is to be the CEO.’”
On the higher echelons of asset management, Tina Renee McCall, CCIM, managing director at Bridge Investment Group, oversees the public company’s asset management team and office strategy. “The Bridge Office team has financed, acquired, leased, or managed 275 properties across the U.S., completing approximately $3 billion of transactions,” she says. “We currently manage 13.4 million square feet of commercial office.”
The asset manager term is used universally, she notes, but “I would separate it further: debt asset management and equity asset management; my team members are equity asset managers. I use the term asset management and investment manager synonymously.”
An economics and appraisal background launched her real estate career, and in this strategic role, she spends a significant amount of time talking to and collaborating with tenants, brokers, and property managers; scanning information and data to understand the drivers of local and macroeconomic trends, such as inflation and supply chain issues, for potential impact at the local level; and creating property-specific business plans. Simply put, McCall says, what an asset manager does is find and create value for the building and investors. For instance, when Bridge Investment Group purchases underamenitized and underpopulated buildings in high-growth markets, McCall and her team renovate, add amenities, and build spec suites and white boxes. “Then, we will hire the best leasing team in that market and drive those occupancy and rental rates, creating value for the asset. We are seeing good returns and success across the United States. The average hold is three to seven years, and it’s fun to see what you can do in that time.”
On the other end of the asset management spectrum, Michael Hironimus, CCIM, is managing assets for individual real estate investors. He began his career in private investment, followed by 10 years with Kidder Mathews on an industrial-retail team, before becoming sole proprietor of Duckridge Realty Advisors, West Linn, Ore.
“I noticed there was a need for private asset management. Many investors don’t have the time, expertise, or wherewithal to invest properly into commercial real estate, so I saw a niche: high-net-worth clients and family institutions.” These clients run the gamut from a client with a single $3 million property to another with nine properties worth $80 million–$85 million. Hironimus’ services include driving rental growth; sourcing and analyzing debt; procuring financing; assisting with back-end tax strategies, accelerated appreciation, and cost segregation; and mitigating risks. He looks at what the investors are trying to accomplish—cash flow, legacy portfolio—because that drives the risk profile. “Then, we formulate goals. We focus on risk management and making clients aware of future risks and pitfalls.”
When he was hired to recruit a new leasing team he was paid hourly on retainer, but compensation for asset management or portfolio management typically is based on a percentage of net operating income. The rationale: “Property managers usually take a percentage of gross operating income, but we’re focused on the income and expenses – trying to optimize and streamline the expenses. That fee structure aligns our interests with those of our investors.”
Hironimus sometimes plays the role of teacher or psychologist, helping a complacent investor—for example, someone who isn’t collecting the correct market rents or who is deferring improvements—to get back on track. He recently saved a client several hundred thousand dollars in one year. “The idea with asset management is you take clients who are more passive and replace it with active management. That’s what real estate needs.”
Property management remains critical to the profitable functioning of buildings. But as the business grows in complexity, the need for active financial management will solidify the role of and demand for asset managers.