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Buying, Selling, and the Asset Manager

August 18, 2017 | Michael Lanning CPM

“Over the past few years, there has been a growing focus at IREM on the increasingly sophisticated, highly nuanced relationship between property managers and asset managers,” 2017 IREM President Michael Lanning, CPM, states in his most recent article for National Real Estate Investor. “Also coming under greater scrutiny is the relationship between the asset manager and a company’s acquisitions/dispositions team.”

As Dustin Read, PhD/JD, points out in his new book, Acquisitions & Dispositions: The Role of The Real Estate Asset Manager, the most successful combinations of talent exist in a culture of communication and respect across disciplines. “In that way, in fact, there is little difference between the relative roles of asset manager and acquisitions/dispositions and that of the property and asset manager.”

“The structural organization of a real estate investment management firm must...be taken into account when exploring ways to help asset managers collaborate with acquisition and disposition teams,” writes Read. As one professional interviewed for the book is quoted as saying, “Acquisitions has to see asset management as a partner.”

Lanning notes that creating a collaborative dynamic across disciplines is a process that grows from the top down. “Clearly, it’s important that these teams be blended so everybody is working together,” writes the IREM President, “that both acquisitions/dispositions and asset management all understand what the buy, hold or sell objectives are, whether it’s a product or a portfolio, and indeed each brings a specialized skillset to the party. When everyone is on the same page and everyone takes ownership of what their roles are, siloed mindsets are put aside in favor of a productive working relationship.”

Lanning points out that it’s a matter too of having people on staff who recognize that the other players in that scenario are of equal importance. “To that extent, he says, “a collaborative culture grows not only from the top down, but it also grows outward...to other disciplines, a fact vitally important not only to the acquisitions/dispositions and asset management disciplines, but to property managers as well.” For instance, Read says:

"All types of real estate practitioners interested in informing acquisition and disposition decisions were pressed to enhance their ability to identify factors capable of eroding the competitive position of properties. Changing submarket conditions, upcoming tenant rollovers, pending capital improvements, and the phase of the market cycle a specific real estate product type or geographic location are in were also put forth as examples of variables influencing whether or not it is time to buy or sell.”

In fact, Read quotes one director of investor services who noted that, “Property managers need to read the investment prospectus and manage or provide information with those objectives in mind.” To that end, it behooves the property manager to bone up on such issues as purchase and sale agreements, loan documents, sources of debt and equity financing and the due diligence activities involved in real estate transactions.

Within that context of shared knowledge, says Lanning, the importance of the asset manager’s involvement in acquisitions and dispositions becomes clear.

On the acquisitions side, an asset manager truly on top of her or his game brings a wealth of knowledge and a critical perspective to the team; so it makes sense that the asset manager should weigh in on the acquisition proforma. They’re out in front of the product type, the geographical area the fund is looking for and they understand the criteria of the ownership entity.

“Real estate investment management firms were encouraged to involve asset managers in underwriting as early as possible to prevent acquisition teams from getting prematurely locked in on deals,” writes Read. (He goes as far as to suggest that the best way to avoid conflict between players is to give the asset manager not just involvement but indeed greater influence over underwriting decisions.)

The same function exists on the sell side. “No one knows the properties better than they do and they can vet all of the information included in an offering memorandum. They can also use the information they have to lead capital transactions groups towards a sale decision.”

According to Lanning, a culture of collaboration has to be developed from senior management and then communicated to the teams. “A failure to do so results in a siloed internal structure and a disconnect that frankly disrespects ownership’s investment vision.”

To put it another way, Read says, “collaboration tends to lead to more effective communication and a work environment conducive to achieving mutually beneficial goals.”

“Cases of siloed operations suffering under a disconnect between these two disciplines are not found straight across the board, but they do exist,” says Lanning. “We often see that same dysfunctional dynamic in a disconnect between asset and property managers who are not aligned or when one or both of those operatives are not at the top of their game.

“Likewise the acquisitions/disposition team and the asset manager. Everyone needs to be on the same page to properly, professionally and efficiently turn the investment strategy of the ownership entity into the reality of a profitable portfolio.” 

About the Author
Michael Lanning, CPM, is the 2017 IREM President. He is also Senior Vice President and Market Leader for the Cushman & Wakefield, AMO, office in Kansas City, MO. This blog post is taken from his article, How Important is the Asset Manager's Relationship with the Acquisition/Disposition Team? as published in National Real Estate Investor.

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