What to do when your corporate real estate portfolio is underperforming

Corrective Actions for an Underperforming Commercial Real Estate Portfolio

What Corporate Real Estate Teams Can Do to Keep Growth Steady

Corporate real estate management is a continuous process. The market is always moving and changing, which means your CRE portfolio isn’t static. The performance you enjoy one day could take a downturn the next. Or it may turn out that you estimated the performance of your portfolio incorrectly and now it appears to be underperforming.It can happen to any commercial real estate portfolio, even ones that have historically performed well.The key indication of underperformance for a CRE portfolio is stagnant or negative growth. Anytime your corporate real estate analysis indicates stagnation or negative growth, you know you have a problem that needs fixing – and quick. Hoping that stagnation corrects on its own is the first step toward rapid decline.The question every commercial property management firm should ask themselves is, What’s holding asset management performance back, and how do I get growth and cash flow back on track?We’re going to briefly examine some of the most common reasons for CRE portfolio underperformance as well as what you can do to correct the situation and reverse the stagnation.

Underperformance Issue #1 – Your CRE Portfolio Has Too Much Risk

Risk is a part of investing no matter what the investment vehicle is, but when a CRE portfolio has too much risk it can severely impact performance. Risk comes in many forms in corporate real estate, so company portfolio managers must always mitigate it.CRE portfolio underperformance indicators include:

• A rise in interest rates would negatively impact expenses and cash flow across the portfolio
• High level of illiquidity
• Regulation changes that would impact the majority of all your properties, buyers, tenant relations, or property management fees
• A tax rate increase on any asset is likely
• Assets that are in areas with declining growth

Solution – Better Understand Where the Risks Lie and Diversify

Space market risk is also a possibility. In addition to the factors above, it accounts for the possibility of your projections being off and putting your portfolio at high risk. With a proven platform like RefineRE, you can manage risk better across the board. Next-level asset management tools like Market Intelligence accounts for fluctuations to make more accurate projections so you’re better prepared for what’s ahead.

Underperformance Issue #2 – Being Tied to Legacy or Outdated Tech

Today, it doesn’t matter what industry you are in – if your technology is outdated, you are already falling behind. Improved data science in the commercial real estate industry is changing how company portfolio managers do their day-to-day business. Legacy tech can waste your time and resources while lacking the dependability of newer technology. CRE portfolio underperformance indicators to look for include:

• The software your property management team uses hasn’t been updated in 5+ years
• Corporate building and lease data isn’t made available in or near real-time
• It’s difficult and/or time-consuming to aggregate all of your data
• Reporting capabilities are minimal
• Customization is minimal

Solution – Update Your Technology Strategy and Invest in New Tools

If you’re using a legacy solution or haven’t updated your commercial property management software and technology strategy in nearly a decade, it’s time to give it an upgrade. Specially designed Software as a Service (SaaS) such as RefineRE is a solution that resolves many of the most common issues that cause a CRE portfolio to underperform.The newest corporate property management software makes it easier to process more data in real-time than ever before. They also offer visualization tools that make it easy to see how data comes together and all of the factors that are influencing performance.

Underperformance Issue #3 – An Un-diversified CRE Portfolio is Leaving You Vulnerable to Market Changes

Portfolio managers of every kind will offer the same piece of advice – diversify. Diversification protects your CRE portfolio from a windfall. It creates a balance so that even if the market takes a turn for the worst, you shouldn’t be completely impacted. CRE portfolio underperformance indicators to look for include:

• All of your commercial property is the same asset type
• All of your commercial property is in the same area
• All of your properties serve the same marketIf your portfolio checks all of the above boxes, it’s extremely vulnerable and absolutely needs diversification ASAP.

Solution – Look for Related CRE Opportunities

Look for related opportunities that allow you to start branching out without getting too far out of your comfort zone. Is your portfolio stacked with one type of asset class? It might be time to start investing in different asset classes and markets or buy a different type of commercial property within the same market.

Underperformance Issue #4 – Lack of Supporting Commercial Real Estate Analysis

The old school mindset is that real estate investment is part gut instinct. That’s only because back in the day they didn’t have our means of analyzing data. Too often CRE portfolio managers make decisions without doing enough corporate real estate analysis or with little data at all. CRE portfolio underperformance indicators to look for include:

• You have no long-term projections
• You lack supporting documents and reports when it comes time to sell properties
• You don’t have exact spend numbers
• You aren’t familiar with your market’s key metrics
• You have no big-picture analytics

Solution – Start a Data Analysis Schedule

The solution here is clear. You need to gather, analyze, and utilize more data before making decisions. That starts with making data analysis a part of your regular schedule. It also helps to have commercial property management services and benchmarking tools like RefineRE and BenchCore that give you one-to-one comparisons across different metrics.

Reaching the Ultimate Goal of Steady Performance

The ultimate goal is to keep your CRE portfolio on a profitable path. That takes knowing when to buy, when to sell, and when to simply let go of a commercial building that’s holding your company portfolio back. There’s no predictive modeling tool that’s 100% accurate, but reaching your goals is a lot easier when you have an advanced analytics platform like RefineRE that can provide reliable commercial real estate data to guide your commercial property management firm’s decisions.