The core objective of asset management is to maximise property value and investment returns over the life cycle of a property portfolio. The management or operation phase is typically the longest, presenting the largest window of opportunity. By improving operational efficiency, teams can reduce costs, minimise tenant complaints, improve green performance ratings, and maximise productivity. The net result is a resilient portfolio with increased profitability, reduced exposure to risk, and more interest from high-quality investors.
In this instalment of our webinar series on ‘The Future of Property Operations,’ our expert panel discussed the role operations teams can play in driving superior asset performance. The first three webinars in the series featured panels on the topics of ‘Embracing Data and Digitisation’, ‘The Role of Operations in Achieving Net Zero’, and ‘The Evolution of Facilities Management.’
In our fourth webinar of the series, panellists explored the following:
- Why property operations is so critical to asset value
- The intersection of sustainability, operations, and superior asset performance
- Key considerations for acquiring new property investments
- How data analytics drives improved asset performance
- Strategies for improving tenant experience
Participating panellists included:
- Emily Wills, Managing Director of Asset Management at LaSalle
- Edward O’Brien, Fund Manager at STRADA
- David Walsh, CEO and Founder of CIM
Read on for the panel’s core insights, or watch the full conversation here.
Why operations is critical to asset value
Active management of real estate can be considered through two lenses: maximising revenue and minimising expenses. Ed explained STRADA’s short- and long-term approach to active asset management. Immediate active management generally involves tasks that don’t require much capital expenditure, like upgrading to LED lighting or identifying an underutilised space in the building to rent as storage. Over the longer term, managers should focus on identifying larger gains, such as plant and equipment upgrades.
Another path to maximising results while minimising expense is boosting on-site teams' productivity. Emily stressed the importance of freeing teams to focus on tenant relations and add value versus wasting hours trying to troubleshoot issues that could be identified through data. “There’s a big difference in being able to manage your asset on a reactive or a proactive basis,” said Emily. “If you can jump straight to the problem and you’re able to then suddenly start taking a forward-looking approach and dealing with items that you can plan for, that’s a completely different ball game.”
Dave shared an example from CIM’s client CBRE, who were able to significantly improve their NABERS ratings solely via the ability to pinpoint the root cause of anomalies and inefficiencies faster. Other clients, such as QIC, have taken underperforming equipment to a level of optimum performance and kept it there thanks to data from CIM’s PEAK Platform, which enabled them to move to data-driven CapEx and maintenance.
Communication between management and operations teams was agreed by all panellists to be core to driving asset value and achieving high-level performance targets. As Ed put it, “It’s so important that the whole team understands the strategy of the owner, what the real drivers are, and where the owner sees the asset going in one year, three years, ten years. What’s the ultimate objective of the asset? Once your whole team knows that, they can make on-the-spot decisions and ask the right questions.”
Emily agreed, adding, “If you’re working and you don’t understand what the ultimate goal is, how do you make the decisions to get to where it is? It sounds like such a common sense thing, but you’d be surprised how many people you talk to where you’re on-site and it just hasn’t filtered through to the team.”
Where sustainability, operations, and superior performance meet
As a signatory to the Net Zero Asset Managers Initiative, LaSalle is well-versed in practical ways to work toward Net Zero carbon plans through active asset management. In one example, they had problems with domestic hot water units and seized the opportunity to move to electric units, rather than replacing like for like with gas. Thanks to firm-wide awareness of LaSalle’s long-term priorities, they were able to use a plant replacement decision to degasify buildings fairly simply, using capital that was already allocated.
In addition to Scope 1 carbon, reducing Scope 2 carbon is well within the control of operations teams. Speaking of green credential requirements in commercial buildings, Ed said, “They’re definitely coming, and the instances of seeing them within tenant briefs is building. Once you pass through that gate, you don’t go backwards. It only really builds from there.”
Building owners aren’t solely responsible for reducing carbon emissions on-site; tenant consumption is another critical piece of the equation. Ed and Emily have both seen tenants placing minimum requirements to achieve a particular NABERS rating on their premises, which means working hand in hand with building owners and operational teams toward a Net Zero goal.
Contractors also play a crucial role, as Dave reminded us: “To go back to that accountability element, in every single one of the buildings that every property owner has, you have the BMS contractor, you have the mechanical contractor, the electrician for the lighting, the plumber for cooling towers. All of those people play a very important role in collaborating to ensure that the building is actually optimised.” Ultimately, it’s down to every member within the wider operations supply chain to drive superior performance.
Key considerations for acquiring new property investments
Operational metrics have become a core focus for fund and asset managers when assessing property investments. The classic in Australian markets is the NABERS rating, which Ed called “the first port of call to understanding how a building is performing operationally.” NABERS has been deeply integrated into property operations in Australia and New Zealand over the past two decades and has now been implemented in the UK, a true testament to its success.
NABERS and similar ratings serve as a key indicator to fund and asset managers. If the rating is low, they know there is work to be done. If the rating is high, funds can expect to see that reflected in the operational expenditure of the building. STRADA also looks at maintenance logs for key pieces of plant and equipment, such as HVAC and lifts, to understand how they’re being serviced and to identify any underinvestment by the current owner. Both NABERS and maintenance logs can serve as early warning calls for potentially costly capital expenditure.
Dave and the team at CIM work closely with superannuation funds in Australia and pension funds globally that have penalised or even halted investment in underperforming assets. “In at least half a dozen cases, they’ve stopped the flow of capital into real estate investment trust and owners that can’t demonstrate that they’re going to a granular level and have a complete handle on the operational performance,” Dave said. All roads lead back to the shareholders; once a performance benchmark is established, owners are expected to meet or exceed that standard moving forward.
But assets that are deemed unsuitable by one investor aren’t necessarily a lost cause, Ed noted. “That presents an opportunity for another investor to then make the investment that the current owner is unwilling to do. As long as it’s adequately priced, there should be a good return at the end of the day for the incoming investor to resolve whatever those life cycle issues are.” Dave saw this firsthand with Kyko Group’s 99 Elizabeth Street, which was purchased at a 4.5-star NABERS rating, refurbished, and now runs at nearly 6 stars.
Investment drivers must be balanced with measures of sustainability and operational efficiency, too. Some of the steps to reach Net Zero are economically justifiable today, while others will probably be market demand-led, Emily pointed out. “People want to move towards more sustainable assets. If they’re on that carbon journey with their existing buildings and they’re looking to purchase additional buildings, they’re not going to want to take backwards steps when they’ve got set goals by set dates.” Carbon plans, NABERS improvement plans, and energy efficiency plans are all investment rationale, opening up investors to a wider span of buyers when they look to sell an asset.
How data analytics drives improved asset performance
In his work with REITs and superannuation funds, Dave has seen the PEAK Platform improve the lives of asset and fund managers in several ways, the first being simple peace of mind. When a fund manager asks an asset manager about performance, they’re able to respond with data on each asset and the optimisations that have occurred. Critically, asset and fund managers are able to get more from what they already have before initiating CapEx.
It’s also a great early identifier of talent within a large portfolio, as the data makes it easy to see which FM's are responding to issues, closing them out, and following up with contractors in a timely manner. Managers also gain visibility into the supply chain, so they can understand which maintenance teams are engaging with the on-site team.
That said, data-driven analytics will only ever be as good as the on-site team’s ability to use it. As Dave put it, “Nobody cares what goes on in the background of Google Maps or banking software. They just want to get in and have a good user experience.” In other words, delivering overly technical information to non-technical people is a mistake; it’s overwhelming and a terrible user experience. CIM saw engagement skyrocket when they focused on creating a great user experience and making onboarding a seamless process.
Emily sees enormous value in the level of precision data affords, which enables teams to make faster and better informed decisions. Ideally, data facilitates repairs before tenants even know there’s a problem. “The days are gone when you buy a building and you’ve got ten pages of low-hanging fruit,” Emily said. “If you’re going to get improvements now, you’ve got to move into slightly more sophisticated methods.” Data delivers those methods, enabling FM's to get ahead of tenant complaints and prevent equipment damage by moving quickly on faults as they’re identified.
STRADA has also internalised this approach. When the group took an asset to market last year, they first improved the NABERS energy rating substantially and achieved a six-star water rating. “The market has become more selective in its allocation of capital, and without that deep dive into the data and what was causing some of the operational issues, I think it would have been a pretty different outcome on where we realised liquidity and the interest that we achieved along the way,” Ed shared.
Improving the tenant experience
Ultimately, the conversation ended on the importance of an excellent tenant experience and strong tenant relationships. As Emily noted, “People have got businesses to run, and there's a really important balance between providing the environment where they can just do that, and also having an appropriate level of communication with them so that they know who you are and they know who your team are.” A strong tenant relationship helps ensure that tenants come to the building owner when their lease is about to expire and they need more space.
Dave shared a story from one CIM client who had 60% of tenant complaints arise from air conditioning issues before implementing PEAK. After successfully diagnosing and repairing the relevant issues, 'hot and cold' complaints fell well below 10%, freeing the team up to focus on other tenant engagement initiatives. High-performing assets should have minimal friction, especially when tenants pay a premium per square metre. Apart from thermal comfort, buildings that are too cold or too warm use excessive energy, degrading the life cycle of their equipment and impacting sustainability objectives.
Ed suggests that when building owners find themselves backfilling, they drill down into the needs of the market. Understand what tenants in your market expect and what your competitors are delivering. Make sure your tenants and the market at large understand the advantages you offer that distinguish you from your competitors. Superior asset performance, as supported by the data-driven analytics that enable it, provides an excellent way to set your portfolio apart.
CIM's PEAK Platform is a best-in-class building analytics SaaS technology, improving efficiency, sustainability, and tenant comfort across property portfolios. Discover more by watching a demo.