Many investors have been told commercial real estate is a sound investment because of the reliable returns and even more secure revenue streams. But that doesn’t mean every real estate investment will pan out if given enough time. Simply having a real estate portfolio isn’t enough to guarantee a return.
If you’re going to invest in commercial real estate, you have to know what to look for when you’re analyzing real estate portfolios so that you find the right balance of management, risk, and reward. Recognizing the signs of a healthy portfolio is the type of commercial real estate business intelligence that comes from knowing where to find reliable data and how to use the data analytics you find.
As you read through the signs listed below, you may notice a trend. Healthy portfolios are driven by commercial real estate data rather than gut instinct. Without it, you won’t know if a property is more or less likely to provide a return on your investment.
The biggest problem for commercial real estate professionals is that finding reliable market data can be difficult. The ideal solution is having the ability to generate your own commercial real estate data that can be used to create accurate analytics and benchmarks. If you are going to use a third party source for data analysis, it will require extra due diligence to ensure the business intelligence is good, because inaccurate data can make a portfolio look healthier than it actually is.
Every commercial real estate portfolio is unique, but high-performing portfolios tend to share a few common characteristics. There are four clear signs that a commercial real estate portfolio is primed for success.
Historically, commercial real estate has outperformed the S&P Index in addition to providing immediate revenue streams and long-term appreciation. But is your CRE portfolio performing as expected?
You’ll never know if your portfolio is over or underperforming without realistic ROI targets. Hitting those targets is a clear sign that things are on the right track. However, this does rely on sound data and tracking software to first set a realistic ROI target and then track performance to measure whether the target is being reached.
Is the portfolio meeting other benchmarking metrics? ROI is often the most important metric, but it’s not the only contributing factor for a portfolio’s health.
Benchmarking metrics creates a framework that tells you how your portfolio is performing against a set of standards. With benchmarking, a portfolio or property can be compared to the industry at large, your peers, or your own company’s historical property data. You can also benchmark metrics for a particular market.
Commercial real estate – no matter what type it is – needs to be occupied to generate revenue. That’s why usage capacity, also referred to as utilization, is such an important piece of commercial real estate data for a company. Usage capacity is how much usable space is being utilized by a paying tenant. The higher the usage capacity is, the healthier a commercial real estate portfolio will be.
As with any investment portfolio, you want to see some diversity in commercial real estate portfolios. Having a diverse range of investments is one of the only ways a person can safeguard themselves from potential losses.
When you’re investing in real estate you can diversity by choosing different types of property, also known as asset classes. Or you may have an existing portfolio with conventional assets and add commercial real estate for diversification.
Either way, diversity is a sign of a healthy investment portfolio.
Those who already have a commercial real estate portfolio may be concerned if it doesn’t always show signs of being healthy. Real estate investments are complex because the market is always changing, but that also means there are opportunities to improve performance. You just have to know what will help improve your portfolio’s health.
The key to boosting an underperforming portfolio is commercial real estate business intelligence. Without it, there’s no way to know if your portfolio is reaching its full potential.
Asset and market performance research is the backbone of a successful real estate portfolio. You need to know how a certain type of property is performing at a macro level and what forces are affecting performance. Local market research is also needed to gauge supply and demand for a certain area.
One issue you may run into is aggregating all of the data in one place so that the analytics provide a complete picture and gives actionable insights. With an investment like commercial real estate, this is challenging because of all the macro and microeconomic factors at play. Information might be gathered from a variety of technology and data sources that aren’t always related, which will create gaps in your information gathering.
At RefineRE, the goal is to give corporate occupiers the perspective they need to see commercial real estate data in a whole new way. A way that provides a healthier outlook with comprehensive data that leads to better decisions. Without a real estate analytics platform like RefineRE to aggregate the information you could miss a key data point that ends up being costly.
Remember, researching commercial real estate data is a huge part of due diligence. With so much information available it can be difficult to wade through it all in a meaningful way. Even if you are getting started with a real estate investment trust (REIT), tools like the ones developed by RefineRE keep you better informed so you can keep your commercial real estate portfolio as healthy as possible.