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Investors Realize Superior Returns With Active Asset Management

Investors Realize Superior Returns With Active Asset Management

Most multifamily real estate professionals understand the fundamentals of asset management (AM) and how AM teams interact with third-party operating partners.

But insert the word “active” before “asset management,” and the term’s implications are completely changed, the well-established protocols challenged.

In the multifamily industry, active asset management (AAM) is characterized by investors who use third-party management companies, but maintain a closer, continued, strategic involvement in the administration of their portfolio component companies. While external property managers continue to handle the day-to-day details of leasing, resident management and property maintenance, AAMs step in to help associated PMs better leverage resources to maximize portfolio returns.

Today, more and more investors are transitioning away from the traditional, hands-off approach and shifting toward AAM. A number of new technologies have made AAM easy to execute, and the market leaders who have adopted this approach have already seen clear benefits.

The Drawbacks Of Traditional Asset Management

Investors Realize Superior Returns With Active Asset Management

Multifamily real estate hit an all-time record of $150B in 2015, and that upward trajectory is predicted to continue in 2016. Because of its incredibly consistent growth, most multifamily investors have been able to passively manage portfolios for years without a negative impact on their NOI.

Although many investors believe they’re already paying PMs to handle all the details and optimize asset performance, PMs don’t have a vested interest in maximizing asset performance; it’s the classic principal-agent dilemma. The AAM approach is the solution to mismanaged or undermanaged properties, which can lead to below-market rents, neglected properties devolving into disrepair, and higher rates of delinquency.

Ascending To Active Asset Management

Investors Realize Superior Returns With Active Asset Management

The first step to adopting AAM is gaining insight and visibility into portfolio performance. Without access to accurate, frequently reported data at the property level, AAM is impossible. Thankfully, as multifamily technology improves, better options for real estate software abound, delivering the portfolio info that enables AAM.

With the right data, asset managers can analyze trends across properties, measure vital KPIs and parse information according to asset types, geography and plenty of other criteria. Investors can then identify and address key operational inefficiencies across properties. Armed with accurate info, conversations between investors and operators become simple, driven by data rather than belief.

Leading The Multifamily Market

Investors Realize Superior Returns With Active Asset Management

While traditional AM isn’t broken, it’s clear that active asset management can help investors achieve superior results. Instead of sitting back and waiting for problems to materialize in a quarterly report, AAMs can get ahead of problems before they manifest, empowered to intervene long before their bottom lines are affected. AAM is proactive, rather than reactive. A wealth of property data combined with nascent sophisticated platforms and technologies to interpret it are compelling investors everywhere to adopt AAM and lead the multifamily market.

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