How Property Manager Scorecards Boost Returns
Scorecarding your property manager could add real basis points to your total return. However, the real estate industry is lagging when it comes to adopting a data-driven property manager scorecard, say TIAA-CREF and RealFoundations.
As an industry, private real estate often seems antiquated in terms of process, metrics, and management solutions. That’s why there is little surprise that managers have been slow to adopt a data-driven property manager scorecard approach, despite the impact it can have on asset performance.
Scorecarding property managers gives owners a better grasp on how operators are performing on their behalf and identifies how to attack the problem when they aren’t performing well, says Chris Williams, director of the consulting firm RealFoundations.
Property manager scorecards measure asset-level operations based on a standardized set of key performance indicators (KPIs) that go hand in hand with comprehensive governance standards.
While the concept appears simple at a high level, it can be challenging to implement in an industry where most asset managers do not make use of the practice. This is further compounded by operating partners who often lack consistent reporting methodologies and often resort to simple Excel spreadsheets to capture a plethora of data.
“We are no longer just investing our own capital but growing into a world-class global asset manager,” says Paul Rozelle, managing director of private and alternative operations services at TIAA-CREF, a firm that manages $89B in global real estate assets. “So we asked, what do we have to do to make that leap? We have 36 different property management firms and over 200 individuals handling our properties, so getting them to act in alignment to ensure consistent data and performance within our system was critical.”
Williams advises that the first step in developing a scorecarding system is defining the universe of KPIs. “It’s most important to understand the things you want to measure,” says Williams, “asking what you want to hold your property managers accountable for and getting each definition assigned.”
Providing further insight into the TIAA-CREF program, Craig Lord, director of property management governance at the firm, explains: “We score using 18 metrics. The main categories are financial, accounting, and operational.”
The goal, he says, is to have data capture that runs the gamut from areas such as capital expenditure tracking and financial reporting to more specific examinations, such as sustainability practices and tenant satisfaction.
The team then bakes a comprehensive communications plan into the process. “The key is to have communications where asset managers, sustainable directors, accounting, Yardi support—all of these parties are [regularly] gathered and we continue to give ongoing instruction and feedback,” says Lord.
After seven years of running the program, the results appear compelling. “Although not causative, we have determined a strong direct correlation showing that, in a 100-point system, for every 1 percent score increase, it adds on average between 12 to 19 basis points to total return for investment, varying by property type,” says Rozelle. “It also reduces operational, reputational, and insurance risks.”
While the program is still in its formative stages industry-wide, Rozelle hopes for greater adoption of scorecarding. “As we sit across from investors who seek to put money with us, it’s a differentiator. It adds credibility to [the asset class], and it would benefit the entire industry if it were more broadly applied.”
By adopting a data-driven property manager scorecard approach, firms such as TIAA-CREF are generating extra total returns for their assets.
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