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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 risk exposure 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.
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:
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.
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 their 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.
A real estate asset manager is different from a property manager, who deals with the day-to-day operations of a property.
Asset managers in the real estate industry tend to specialize in particular types of properties, 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.
Most investors look for real estate asset managers who are experienced. The following is a list of the main duties of this profession:
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.
A property manager assists with the day-to-day operations of a property, such as maintenance. An asset manager in real estate is there to ensure the appreciation of the property as an investment and to maximize any income that can be derived from the property.
Asset managers in commercial real estate are responsible for finding the best tenants (those that will pay the most rent and are the most reliable), filling any vacancies rapidly, negotiating lease terms, and hiring property managers.
To become a real estate asset manager you need a deep understanding of the real estate market. You also need to understand accounting and economics. Additional analytical skills will help, as will project management skills, interpersonal skills, and communication skills.
If you own an investment real estate property or properties, utilizing a real estate asset manager can help ensure the appreciation of your asset and maximization of returns. Real estate asset managers are able to assist with a variety of tasks from negotiations, filling vacancies, hiring property managers, working with agents, and managing cash flows; all items that might be difficult for an individual who has a full-time job or other areas of income to attend to.
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A sublease is the renting of property by a tenant to a third party for a portion of the tenant’s existing lease contract.
The gross income multiplier is obtained by dividing the property's sale price by its gross annual rental income, and is used in valuing commercial real estates, such as shopping centers and apartment complexes.
Rights of ingress vs. egress refer to a legal right to enter or exit a property owned by another party. The right of egress is the legal right to exit.
The subprime meltdown includes the economic and market fallout following the housing boom and bust from 2007 to 2009.
Other Real Estate Owned is a bank accounting term that refers to real estate owned by a bank that is not directly related to the bank’s business.
A grantee is the recipient of a grant, scholarship, or some type of property. In real estate, the grantee is the one taking title to a purchased property.
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