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A New Approach to Capital Planning for Investment Managers

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In the world of commercial real estate, there is a clear through-line, in the form of a coordinated capital plan, beginning with underwriting, then managed from acquisition through disposition.

Effective, dynamic capital planning gives investment managers the greatest opportunity to achieve long-term success in growing asset value for their investment partners. A well executed, well-defined capital plan acts like a crystal ball, informing stakeholders how and when to deploy capital to maximize investor returns.

Who Really Needs a Capital Plan?

In the world of asset management, anyone deploying capital across investments, whether over the short or the long-term, needs a capital plan. Those holding fiduciary responsibility are obligated to make responsible decisions about where and when to invest.

Investment management firms grow the value of assets they manage on behalf of investment partners. A well-constructed capital plan becomes especially important for investment managers because they rely upon third-parties to manage and execute capital projects. The capital plan is the essential playbook through which to direct third-party managers to prioritize budgets and timelines.

Data Volume Complicates Decision-Making

Given the number of assets in any one portfolio, the simple task of compiling data for all active projects is time-consuming and prone to data entry error if it is conducted manually. Why?

  • There are no proper controls around plan, and/or contract approvals.
  • There is no visibility into what third-party managers are doing in real time.
  • Data, once available, is siloed and difficult to compile.

Every step in the manual process makes it more unlikely that information will be timely and even less likely that insights can be applied to the capital planning process in a meaningful way. Furthermore, in the absence of a standardized solution, comparing actual data to the capital plan could be painful, if possible at all.

Timing is Everything

This transmission time creates delays, decaying the accuracy of the information. It also fails to accommodate mid-cycle reporting or data snapshots as necessary. Quarterly reforecasting is painful and monthly reforecasting may not be possible.

What are the possible outcomes of infrequent reforecasting? Assets can easily run over budget when unplanned projects arise or when actual costs of one or more projects exceed budget expectations set forth in the plan. The result is lower cash on cash returns which must be communicated to investment partners.

Conversely, projects get canceled or come in under budget. When asset managers are unable to access this information in a timely manner and reallocate cash to additional value-creating projects, NOI is diminished.

All of this may mean that when unplanned project changes arise, no one has sufficient insight to be confidently prepared.

A New Approach to Focus on Outcomes

There are tools available to help minimize risk by making more robust data insights available including:

  • Access to a live database as opposed to disconnected spreadsheets.
    • We used to rely upon spreadsheets. In order to scale effectively, live databases allow third-party managers to input project cost data that asset managers can access immediately. Time wasted aggregating data from numerous sources is reclaimed and reallocated to other tasks.
  • A digital dashboard, which allows investment managers to aggregate data from a variety of sources and third-party managers.
    • A digital dashboard allows stakeholders to aggregate, view and or filter information across multiple projects and assets. Real-time data can be reviewed and analyzed by region, property and project type. This facilitates more accurate budget projections and estimation of project costs and timelines.
  • API integrations to facilitate seamless information sharing and transparency.
    • Software solutions with technology that integrates with accounting, finance, and investment services ensure the accuracy and the freshness of information. Manual data entry, human-error, and version control issues are greatly reduced.

Better Plans Yield Better Outcomes

Greater accuracy in budgeting on your capital plan may drive greater consistency in delivering projects on-time, driving project costs down and delivering better returns. The success measure for investment management is making the right capital investment decisions to maximize returns more consistently. The right technology resources allow investment managers to create greater value, from the individual project to asset, or entire portfolio, in real-time.

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