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Author: Jen Tindle

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Capital Formation Investor Relations

Low Cost, High Impact in CRE Fundraising

Work smarter, not harder

One of the metrics I often quoted in pursuing new commercial real estate (CRE) investors was our attrition rate: 0%. Once an investor chose to partner with us, they did so again and again. In other words, we either made them money or instilled enough confidence that we would make them money soon. How do you ensure that your investors stick with you? Follow these five simple steps for low cost, high impact in CRE fundraising.

  1. Be as transparent as possible.
  2. Overcommunicate.
  3. Make them feel important.
  4. Create connections with your other loyal investors.
  5. Make them money.

1. Be as transparent as possible.

Share as much information about their investment as you can as often as you can. The key to this step is knowing how much to convey that instills confidence while not sharing so much that you have to answer lots of questions.

How do you decide what to share? My advice is to 1) share more KPIs and status updates than your competitors while 2) being cautiously optimistic.

2. Overcommunicate.

You need to update your investors on their investments’ progress with enough regularity and detail that they don’t question your ability to meet or exceed expectations. How often should you communicate with existing (and prospective) investors, then?

Whether you manage one syndicated investment, a fund, a REIT, or any other real estate structure where you have investors, you should formally report to investors on at least a quarterly basis.

You should also report the investments’ financial statements on a quarterly basis, including the schedule of capital by investor. This may not be required until annually depending on the investment structure. However, if you want to grow your platform, you should report both of these quarterly.

Next, you can host a quarterly webinar to review your investments’ progress. You should absolutely use this as a fundraising opportunity. Invite prospective investors. All of them.

I recommend having an annual, in-person meeting where you discuss all of your investments. Keep this limited to existing investors. Help them get to know one another, forming a bond around making the brilliant decision to invest with you. The more connected they are to your strategy, team and network, the more likely they will be repeat investors.

Notice that the step here is “overcommunicate”. What I described above is standard levels of communication. I highly recommend more touchpoints, especially for your key investors. The more time they spend with you, the more important they feel.

3. Make them feel important.

“The desire for a feeling of importance is one of the chief distinguishing differences between mankind and the animals. This desire makes you want to wear the latest styles, drive the latest cars, and talk about your brilliant children.”

Dale Carnegie Tweet

Spending quality time with your current and prospective investors, getting to know them, and remembering to ask how their partner, child, pet, etc. are all ways to make your investors feel important. This is hands down one of the most critical steps in this whole process. If you aren’t great at remembering details about someone’s personal life, then try using a customer relationship management software (CRM). As of today’s writing, Salesforce and HubSpot are two leaders in the space. HubSpot has a free version that you can use to get started today.

The more important someone feels around you, the more they like you. The more they like you, the more likely they are to invest in your offering.

Being genuinely interested in other people is also called being a good human.

4. Create connections with your other loyal investors.

If you know me well, then you know I love idioms. One of my favorites is “birds of a feather flock together.” This could not be more true of real estate investors.

It’s common knowledge in the institutional investor world that landing a lead investor guarantees several additional investments from like-minded institutions. This same practice happens with family office, UHNW, and HNW investors. While you can’t control existing relationships across these parties, you can create and strengthen new relationships. Don’t just play the game; make the game.

Introduce investors who you think will like each other on both a personal and professional level. Coordinate a lunch, dinner, or drinks meeting if they happen to be in the same city as you. Foster relationships. Again, you’re being a good human while also being effective at CRE fundraising.

5. Make them money.

If you surpass the expectations you set for investors on investment execution, be it cash flow or disposition, your investors will love you. Enough said.

I hope these five simple steps for low cost, high impact in CRE fundraising will help you be a more successful investor relations or capital formation professional. Have any comments or suggestions? Reach out below.

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I hope you use your real estate valuation methods knowledge to make improve your valuations. Let me know if you have any questions or edits. I always love hearing from you.

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Accounting Asset Management Finance Investor Reporting

Do You Know The Most Common Commercial Real Estate Valuation Methods?

Firms often choose one of three common real estate valuation methods for fair valuing their properties. Do you know what they are? If not, you should.

The most common real estate fair valuation methods include the income approach, sales comps, or the bid on value (BOV) method. Most opt for the income approach, which gives you a clear estimate of the specific investment’s value based on actual net operating income and recent sales.

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The Income Approach

The income approach involves three crucial steps:

  1. Projecting Future Net Operating Income: Start by creating a discounted cash flow model to predict the net operating income (NOI) for the next 12 months. NOI, not to be confused with net income, is the linchpin of real estate valuations. It encapsulates the property’s cash flow by considering operating revenues and expenses.
  2. Determining Market Cap Rates: You must gauge the specific investment’s market cap rates. Cap rates, or “capitalization rates”, are typically calculated as the sum of forward 12 months’ NOI divided by the property’s purchase price or valuation. Cap rates differ greatly by market, property type, vintage, and more. You must research each property’s cap rate and consult third-party data sources for accurate, recent, and property-relevant cap rates.
  3. Calculating Property Value: Armed with NOI projections and cap rates, you can unravel the property’s true value. Divide the investment’s projected 12 months’ NOI by the market cap rate, and you’ve got the value of the property if it were to sell today.

Sales Comps

If properties sold recently near yours, then you could argue that your property would sell for around the same price. That said, you need to ensure comparability of properties via:

  • vintage,
  • construction,
  • size,
  • composition, and
  • other reasonable forms of comparison.

Typically, firms will gather as many recent comps (comparable sales) as possible. Then, they will divide each purchase or sale price by the property’s square feet, units, beds, etc.

Next, they will average the purchase price per square foot, units, beds, etc. and then multiply it by your property’s square foot, units, beds, etc. This allows you to calculate your property’s relative value.

Finally, this valuation method is tricky not because of the math, but because many states are what’s called “non-disclosure” states. In these states, parties to a real estate sale are not required to disclose price information. That makes accessing recent sale comps challenging.

BOVs

Another common real estate valuation method is BOVs, or broker opinion of value. I rarely see this method used in isolation to value a property. Normally, you request BOVs to support the sales comp method of valuation or your income approach valuation. That’s because a BOV is exactly what it sounds like: a broker’s opinion of your property’s value. Most brokers will provide you with a higher-than-actual BOV to entice you to sell. As such, it’s not considered as reliable as the other two valuation methods.

Great! We’re done now, right?

Not so fast.

Get the Full Details on Real Estate Valuation Methods

Want to learn more about real estate valuation methods? Amazing! You’re not alone.

I wrote this free white paper for you. Take it, expand on it, and let me know your feedback. 

(Put the price as $0 and then select “I want this!” after clicking the button below. Of course, if you want to buy me a $5 coffee, I won’t say no…)

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I hope you use your real estate valuation methods knowledge to make improve your valuations. Let me know if you have any questions or edits. I always love hearing from you.

Categories
Accounting Asset Management Investor Reporting KPIs

How to Prepare Real Estate Investor Reporting

It’s that time of year. You need to prepare your real estate investor reporting. Where to begin?

Investment structures and investor composition drive private equity real estate firm’s reporting. For example, the SEC requires certain filings based on your investment structure. Large, institutional investors require quarterly and annual reporting. This is typical regardless of whether they invest in a fund or syndication.

Recently, that reporting has expanded beyond financial projections and operations. Now, it often includes environmental, social, and governance (ESG) data. Many also include diversity, equity, and inclusion (DE&I) data.

Required investor reporting will likely continue to expand over time.

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Beyond Financial Statements: Real Estate Investor Reporting

Most of you could guess that you need to prepare financial statements for your investors. And loads of you probably know that you also prepare capital account balance statements by investor.

What you may not realize is that most successful real estate firms provide far more than the minimum required reporting.

Investors LOVE transparency. The more information you can provide on their investments – while still making your firm look excellent – the better.

Get the Full Details on Investor Reporting

Want to learn more about real estate investor reporting? Amazing! You’re not alone.

I wrote this free white paper for you. Take it, expand on it, and let me know your feedback. 

(Put the price as $0 and then select “I want this!” after clicking the button below. Of course, if you want to buy me a $5 coffee, I won’t say no…)

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I hope you use your investor reporting knowledge to make improve relationships with your investors. Let me know if you have any questions or edits. I always love hearing from you.

Categories
Acquisitions Asset Management Finance

12 Questions To Understand NOI

12 Questions to Understand NOI

NOI is one of the most common requests by institutional and family office investors. What does NOI mean? It means “net operating income”.

Most real estate firms use NOI to value properties. NOI gives a true sense of the cash flow at the property by using operating revenues and operating expenses. Anything below the line, meaning below NOI, is not in the normal course of operating the property and therefore, not used in the property’s valuation.

Let’s take a hypothetical situation to better understand what NOI means.

New Investor Requests NOI Details from Real Estate Firm

Perhaps you landed a job at CALPERs. You go, Glen Coco! That’s a huge win.

As part of your job, you need to assess GPs, aka real estate firms, to understand potential investment opportunities in their funds or other vehicles. You will want to understand the investment vehicle’s overall returns as well as individual real estate investments’ performance. That’s because different funds or vehicles will have unique waterfall structures that impact how much you, the investor, get paid. 

These waterfall structures are up for renegotiation anytime you invest in a new vehicle. As such, it’s important to understand how well the actual real estate performs, as that could potentially result in higher returns for you. It’s also easier to compare across other real estate firms’ vehicles, as the waterfall structures will vary. 

Most new institutional investors (such as yourself in this scenario) make a HUGE mistake here. They know that NOI is important, but they fail to specify what kind of NOI they want. Instead, they send an Excel table with column headers for “Property Name” and “NOI”.

As a GP, I’m freaking out! Here’s what runs through my head: 

12 Questions to Understand NOI

  1. Did you mean NOI at acquisition? 
  2. Or NOI at exit? 
  3. Maybe you meant current NOI? 
  4. Or maybe base case underwritten? 
  5. Current projected? 
  6. What about the time frame? Did you mean trailing 12-months? 
  7. Current month (T1) annualized? 
  8. T6 annualized? 
  9. Or projected 12-months? 
  10. If trailing or projected, do I include the current month or start with the month prior or after?
  11. What GL accounts should be included per their definition of NOI? 
  12. Is that consistent across all of my property types?

Trust me, these questions could go on and on. Most new institutional investors don’t know what they’re looking for, and many a real estate firm throws darts at a dive-bar decades-old dartboard blindfolded and milk-drunk from the fact that they finally landed an institutional investor. 

How Real Estate Firms *Should* Present NOI

As a GP, I recommend presenting the version of each metric that shines your firm in the best light, as long as you’re consistent across all investments or properties. Then, leave your investor with a list of footnotes explaining what you did. You’ll want this anyway to document and train someone else to help you someday.

How Investors *Should* Request NOI

As an investor, you’ll want to clarify at least some of the 12 questions above. Otherwise, the data that you receive back won’t be comparable across GPs. And if that’s the case, what’s the point of requesting that data anyway?

What Actually Happens...

Now, let me let you in on a dirty little secret… most institutional investors rarely scrutinize these reports in detail. They will check to make sure that GPs filled them out at least partially. And that’s about it. That said, an investor will – perhaps a new one who read this article – review these reports line by line. They will ask detailed questions and send the report back to the GP, redlined and asking for explanations. 

As a GP, you should complete these reports in the same way you do for your regular performance updates; provide just enough information that doesn’t beg additional questions. That may mean filling out all required information, or that may mean filling out what you feel most confident in. I’ll leave that up to you.

Now you know the 12 questions to ask about NOI as a GP and as an institutional investor. I hope you use this knowledge to make improved investment decisions and sharpen your portfolio’s performance. Let me know if you have any questions or edits. I always love hearing from you.

Categories
Finance

5 Things I’d Never Do as CFO: Real Estate Valuations

If you think it’s easy being a CFO, think again. You have internal pressures from the acquisitions and investments team to fund cash quickly, manage liquidity so everyone gets paid, quickly and correctly prepare your real estate valuations, and keep your investors (and auditors) happy. That’s a tall order. 

Let’s say that you’re the CFO of a commercial real estate firm. It’s year-end, and you have to review your real estate valuations. You may be overwhelmed by the sheer volume of work. You may be tempted to cut corners. To avoid making mistakes in your haste, here are the 5 things that I’d never do as a CFO: real estate valuations edition. 

1) Fail to review valuations

You may think this is an unnecessary mention, but I’ve seen enough CRE firms to know that this is worth mentioning. Depending on the size of your firm, you may not need to perform a detailed review of each valuation model (and roll-up, if a fund). That said, someone at your firm needs to perform a detailed, line-by-line review of each valuation. 

They should sanity-check totals. Confirm the accuracy of formulas. Review reasonableness of variables. Determine whether quarterly or yearly changes in valuation make sense. 

Ideally, you have at least one person performing an extremely detailed review, and another person performing a more high level “does this all make sense together?” type of review. If you’re the only reviewer, then do a detailed review, sleep on that, and then do a cursory second check.

2) Not support the cap rates used in the income approach

Real estate firms typically use one of the following three methods for valuing their properties: 

  1. Income approach
  2. Sales comps
  3. Broker Opinion of Value (BOV)

The most common approach is the income approach. This is also commonly referred to as the DCF, or discounted cash flow, approach.

With the income approach, you predict the next 12 months’ net operating income for each investment. Then, you determine the market cap rate for your investment. Since you have the market cap rate and forward 12 months’ NOI, you can presume to know what the property/portfolio would trade at if it sold today. Calculate the investment’s value by dividing the forward 12 months’ NOI by the cap rate. You’ll need to account for the capital stack, which I’ll address next. For purposes of determining the overall property or portfolio valuation, the two key ingredients are forward 12 months’ NOI and the market cap rate. The market cap rate sounds pretty important, eh?

It is. And that’s why you need to support it. No self-respecting auditor is going to let you sneak by with a host of cap rates for various markets without justifying *why* you chose those cap rates. You can support it with research data services, BOVs or recent transactions from other properties that you’ve recently sold nearby, or other data sources. Regardless, you need to support where you got your market cap rate from and justify why that’s appropriate for your investment.

3) Forget to account for highly liquid assets in your real estate valuations

This one may surprise some of you! If you think about it, the income approach, BOV, and sales comps methods work to determine the current value of the real estate, not taking into account the current cash held by the real estate’s legal entity (or entities). If you have a material amount of cash sitting on your investments’ books, then you better include it in your total valuation of the investment.

4) Apply incorrect or incomplete prepayment penalties

If you have debt on your investment, then you must take into account the debt when valuing your equity. In other words, if you sold the investment today – or whenever you’re valuing it – then you would need to pay off the debt in full. Many commercial real estate loans come with prepayment penalties. Be sure that you account for those by reducing the amount of equity you’d receive by the prepayment penalty you would have to pay.

5) Fail to verify and document the waterfall structure and debt agreements

Now, this one is the most common of all. We often get in a rhythm of checking the box on valuations. Quarter after quarter or year after year, not much often changes for a single investment. The seemingly routine tasks involved in valuation may lead you to become lethargic. I strongly advise you to avoid this with the plague.

The easiest way to improperly value your real estate investment is not to make a mathematical error; it’s to fail to update your waterfall structure or debt information when a change has occurred. Not all changes involve capital transactions; for example, you may have added a GP to the investment who did not put in any cash, but they will receive payment for their “sweat equity” in the waterfall structure.

You also need to ensure that you have documentation of each of these agreements handy. In the likely event that an auditor requests them, you’ll be prepared. Or god forbid, the SEC makes a surprise visit… well, you’d be prepared for that too.

That’s a wrap, folks! I hope that you enjoyed the 5 things that I’d never do as CFO: real estate valuations edition. Let me know if you have any that you’d avoid too. I always love hearing from you.

Categories
KPIs Property Management

6 KPIs for Property Manager Reporting – Multifamily

Multifamily Manager Property Dashboard

Property managers need to understand property performance so they can quickly correct any negative trends. In this post, I give you the top 6 KPIs for property manager reporting in multifamily.

Also, you must check out this sample Power BI report that covers the top 6 KPIs for property manager reporting. It’s an attractive, easy-to-use dashboard for everyone from your executive team to your on-site management team. If you’re unfamiliar with dashboard tools, Power BI enables real estate professionals to seamlessly integrate and analyze large volumes of data. 

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A Quick Note on Detailed Data

Most property managers want to see current occupancy, delinquent tenants, exposure based on upcoming leases, renewals, maintenance quality and speed, and budget to actuals. These are the top 6 KPIs for property manager reporting in multifamily.

While executives prefer dashboard with visualizations, most managers will want to review that data in a table. I give you an example of how to do both in Power BI. To get a jump start on your reporting, you can purchase this Power BI template at the button below. 

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1. Occupancy

Occupancy allows you to quickly see how full the building or property is. You may have only 4 units, or perhaps you have 400. Having 2 available units will make a huge difference on a 4-unit property, but only a minor difference on a 400-unit property. Occupancy shows the percentage occupied. In the scenario of a 4-unit property with 2 units unoccupied, the property has a 50% occupancy rate. In the scenario of a 400-unit property with 2 units occupied has an amazing 99.5% occupancy rate. 

2. Delinquencies

Your property could be 100% occupied, but if you don’t get paid the rent that you’re due, occupancy doesn’t matter. That’s where delinquencies come into play. You need to monitor how many tenants are delinquent on their payments, how much they still need to pay, and how overdue their payments are. Monitoring these metrics regularly empower you to quickly work with tenants to pay on time. You may also wish to monitor the collections rate to see how much rent and other payments you collect each month relative to what’s due.

3. Leasing

All good things must come to an end… including each lease on your property. Therefore, you must monitor what leases are ending and how quickly you’re backfilling them. You may also want to evaluate whether the rent you charged on a previous tenant is the same or higher for a new tenant. 

4. Renewals

One way to keep recurring revenue high at a property is via renewing existing tenants. You can manage the quality of the management team by seeing how many tenants renewed divided by the total tenants who came up for renewal (this assumes that you’re not increasing rents significantly, thereby pushing tenants out).

5. Maintenance

Tenants are more likely to be happy in your building if any maintenance issues are addressed quickly and effectively. You can monitor maintenance by calculating the average number of days to complete a work order request. Another popular method is by sending tenant satisfaction surveys. With a survey, you can measure the effectiveness of the maintenance staff, i.e. how pleased were your tenants with the quality of the repair work.

6. Budget to Actuals

Preparing a budget to actual income statement empowers you to understand where you’re outperforming your budget and where you need to address areas of concern. By staying on top of your finances, you will ensure that your properties maintain high revenue for you and high net income for your owners. 

Multifamily Manager Property Dashboard
Purchase Power BI Report

Each property management firm (and even each property manager) may want to see slightly different metrics than the top 6 I outlined here. I encourage you to use this Power BI template for inspiration. Take it and make it your own! That’s the beauty of Power BI. It’s easy to mold a Power BI report to your own unique business model.

Hope you enjoyed this post on the top 6 KPIs for property manager reporting in multifamily. Good luck and happy data modeling!

Categories
Acquisitions Power BI

How to Build Your Real Estate Investment Pipeline in Power BI

Do you have Monday morning meetings to review your investment pipeline? If so, you’re in good company. And if not, I bet that you still review your investment (aka deal) pipeline on a regular schedule. It’s imperative to know who’s working on what investments, how those opportunities fit into your firm or fund portfolio, and what stage each of those opportunities are in. Here’s how to build your real estate pipeline in Power BI.

Psst.. for a jumpstart, you can purchase my easy-to-use Power BI report at the below link. And I included a video below so you’ll know exactly what you’re getting.

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Why Should You Use Power BI?

Power BI enables real estate professionals to seamlessly integrate and analyze large volumes of data. The interactive dashboards and reports generated by Power BI provide a comprehensive and visually appealing overview of key metrics, allowing decision-makers to gain valuable insights quickly and make informed strategic choices. With the ability to create customized reports and drill down into specific details, real estate professionals can identify patterns, assess risks, and capitalize on emerging opportunities. Every acquisition team knows that time is of the essence, and Power BI lets you see emerging trends faster than you would in a spreadsheet.

Moreover, Power BI’s user-friendly interface facilitates collaboration within the team, fostering a data-driven culture that ultimately enhances efficiency and competitiveness in the dynamic real estate market.

If you don’t have Power BI yet, click the button below to get started. I highly recommend checking out Guy in a Cube for Power BI tips.

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4 Key Elements for Real Estate Investment Pipeline in Power BI

With Power BI, you can quickly and easily plug your investment pipeline from Salesforce, Excel, or whatever database you use. Then, you can visualize your pipeline across whatever categories are important to you. The top 4 key elements for your real estate investment pipeline in Power BI are:

  1. Stage (i.e. pre-screen, under contract, LOI, due diligence, etc.)
  2. Property type (i.e. market-rate multifamily, retail, etc.)
  3. Geography
  4. Fund (if applicable)

Real estate firms who primarily finance investments via syndications will want to view their pipeline and existing portfolio by investor.

The great news is that you have a myriad of options with a tool like Power BI. 

Accelerate Your Power BI

Want to get a jumpstart on your Power BI development? Download the real estate investment pipeline report in Power BI below.

Purchase Power BI Report

In this report, I show you how to visualize your pipeline across geography, property type, and fund. This report is based on a deal pipeline in Excel.

Hope you enjoyed this post on how to build your real estate investment pipeline in Power BI. Good luck and happy data modeling!

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