Thirty Capital recently attended the Building Owners and Managers Association (BOMA) International conference. During the conference Angelo Mazzella, Managing Director of Business Development at Thirty Capital Performance Group, moderated a panel titled, “How to Effectively Manage, Optimize, and Predict Cashflow”.
Read ahead for some of the key takeaways highlighted during the conversation.
Asset Managers Need to Understand The 3 Pillars of Cashflow Management
Cashflow Management Pillar #1: Asset Management
Commercial real estate (CRE) asset management and cashflow management are intricately linked, as the success of the former is dependent on the effectiveness of the latter. Cashflow management involves monitoring and optimizing the inflows and outflows of cash within a commercial real estate portfolio. Asset managers play a critical role in overseeing the financial performance of properties, ensuring that rental income, operating expenses, and debt obligations are carefully managed. By diligently tracking and analyzing cashflow, asset managers can make informed decisions regarding lease negotiations, rental rate adjustments, expense reduction strategies, and capital expenditures. They must also consider factors like lease expirations, vacancy rates, and market conditions to maintain stable and predictable cashflow. Effective cashflow management allows asset managers to allocate resources appropriately, prioritize capital investments, and mitigate financial risks.
Cashflow Management Pillar #2: Debt Management
Historically, debt management has not been a focus area for commercial real estate firms. But as interest rates rise and leverage decreases, it’s becoming a critical lever to understand, manage, and optimize. The focus of debt management is the leverage, obligations, and covenants against your real estate assets. As expenses rise, debt management is becoming more of a priority for CRE firms.
Cashflow Management Pillar #3: Equity Management
Equity management and debt management go hand-in-hand. The usual capital stack will involve debt and some form of equity. Although equity is just as important as debt, equity sometimes takes a leading role in the Sponsor’s decision-making. Equity investors always want to know the return on investment (ROI), the projected timeline to achieve that ROI, and when they will be able to exit the transaction. When analyzing your asset and portfolio, you should take a look at your equity and determine what needs to be the optimal ROI so that you can execute at the right time.
Expense Growth is the Silent Killer for CRE Firms
Expense growth can often be seen as the silent killer for CRE firms. While the focus is often on revenue generation and property acquisitions, the steady increase in expenses can erode profitability and hinder long-term sustainability. From rising property taxes and insurance premiums to maintenance costs and utilities, CRE firms face a multitude of expenses that, if left unchecked, can significantly impact their bottom line. The challenge lies in managing these expenses effectively while maintaining the quality and value of their properties. Without proper oversight and control, expense growth can eat away at profits, leaving CRE firms vulnerable to financial instability and diminishing returns. Therefore, it is crucial for these firms to adopt proactive cost management strategies, such as optimizing operational efficiency, implementing energy-saving initiatives, and negotiating favorable vendor contracts. By recognizing and addressing this challenge, CRE firms can enhance their financial health and position themselves for long-term success in the competitive real estate market.
Investors are Nervous and Asking Questions
Investors are increasingly nervous about their capital – and asking for faster, deeper insights & reporting. As investor demands and expectations shift, firms must consider how to address investor concerns and keep them informed. Create a plan for how you will:
- Set new expectations and communicate any bad news
- Manage time & effort for investor reporting
- Handle return of capital requests – and any threat of legal action
- Mitigate risks for future deals and investments
Essentially, your investors have questions, and you must be prepared to respond and provide the information they need.
Overall, the discussion highlighted the need to understand the different pillars of cashflow management and strategies to navigate rising expenses in today’s market. Want to learn how Thirty Capital can help you with your cashflow management strategy? Contact us today.
