Approving Leases and Capital ImprovementsMarch 28, 2017
| Dustin Read
IREM’s research report, Real Estate Asset Management: A Process and A Profession, helps to demystify asset management by summarizing the results of over 90 interviews conducted with real estate practitioners familiar with asset management as both a process and as a profession.
Approving leases and capital improvement projects are two asset management functions closely related to budgeting because they have a direct impact on a property’s cash flow. And while these responsibilities do not fall to asset managers in all real estate companies, it is relatively common for individuals working in this capacity to have authority to autonomously approve leases and capital spends that are included in a budget or within defined dollar limits. Asset managers approach these tasks in different ways across firms. A quantitative approach, oversight approach, and deal-making approach were identified in the research.
- Asset managers employing a purely quantitative approach tended to have somewhat limited authority to engage in lease negotiations or approve capital investments. They described their role in the process as that of helping transactions teams or senior executives make these decisions through comprehensive financial analysis.
- Alternatively, those reporting an oversight approach had more autonomy to make leasing and capital investment decisions after turning to leasing agents, property managers and analysts for assistance. The asset manager’s responsibility was described as that of interpreting the analytical work of their team to ensure alternative courses of action were presented for review in concert with educated recommendations before making a final decision.
- Finally, those reporting a deal-making approach inserted themselves into lease negotiations and capital improvement projects early on and remained involved through completion. Asset managers in this group analyzed and approved these transactions independently for the most part.
It is difficult to overstate the importance of leasing and capital investment decisions to the asset management process. As one executive said: “The heart of asset management is analysis; deciding how and when to spend money.” This sentiment led many of those interviewed to define asset managers as professionals with the autonomy, financial acumen, market knowledge, and negotiating skills necessary to complete these transactions in the face of economic scarcity. Respondents representing this school of thought described individuals lacking one or more of these attributes as “advisors” or “analysts” rather than asset managers.
To learn more about what companies expect from their asset managers, check out Real Estate Asset Management: A Process and A Profession.
About the Author
Dustin Read, PhD/JD, is Assistant Professor of Property Management and Real Estate at Virginia Tech. He is the author of Real Estate Asset Management: A Process and a Profession.