Commercial Magazine

Sharpening the Technology Edge

Brokers can help clients optimize their property portfolio’s operating expenses

By Rob Finlay

The best-performing commercial mortgage borrowers are those who know how to manage their expenses and maximize net operating income. This is particularly true when the economy is slowing and investors and operators can no longer rely on rising rents and appreciation to drive value in an increasingly competitive real estate market.

When evaluating a potential borrower or supporting a current lender, mortgage brokers who offer advice on leveraging widely available and cost-efficient technology can help ensure their ability to meet debt-service requirements and contribute to a lower lending risk. For instance, there are technologies and strategies to monitor, control and optimize operating expenses. These include tracking of property costs, management of building maintenance and improvements, and optimization of energy and water consumption.

“Asset, data and project management platforms can be used to automate tasks, help team members interact seamlessly and find important information quickly.”

Commercial mortgage originators can reduce lending risks, avoid bad deals, support the success of their clients and build lifelong relationships. This is possible by evaluating and advising new and repeat borrowers on tech-enabled strategies to control expenses and increase positive leverage.

Tracking and benchmarking

When values are rising and rent growth is strong, owners don’t have to work too hard to generate margins, deliver returns and keep their leverage positive. Fast forward to today as interest rates are well above the historic lows of 2021. Capitalization rates are rising and pushing down valuations as rent growth has cooled.

At the same time, inflation has slowed but is still swelling. This translates into higher operating costs, higher vacancy rates and more competition for tenants, as well as additional pressure on purchase, development and refinance candidates.

Property owners must be more mindful and proactive in controlling and optimizing expenses to stay in the black. To accomplish this, they must first develop an awareness of cash inflows and outflows. Once expenses are known, asset operators need a basis of comparison to determine if and by how much expenses exceed the norm. In other words, how do their properties compare to similar types of assets? These are two purposes for which technology creates cost and time efficiencies.

“The ability to ensure that a commercial real estate company remains a leader over the long term by leveraging innovation throughout its project life cycles assures growth and solvency well into the future.”

Web-based data management software can collect expense and income data from assets across a portfolio. Some specialized platforms also integrate external benchmark data to provide operators with dashboards that display expense data by category. This allows borrowers to compare their assets side by side with data for comparable assets. This insight and frame of reference allows operators to pinpoint where expenses need to be optimized and by how much. Budget or labor cuts can be arbitrary without data to inform decisions, and they may not produce the intended outcome.

Integrative technology isn’t mandatory. After all, an operator could have each property management team assemble and submit data via spreadsheet or PDF. But the unnecessary labor expense and delayed information can hinder a property owner’s profits, margins, situational awareness and ability to make timely decisions.

Mortgage originators need to explain to clients that a commitment to innovation as a value proposition is a major draw for investors and tenants. The ability to ensure that a commercial real estate company remains a leader over the long term by leveraging innovation throughout its project life cycles assures growth and solvency well into the future.

Automating processes

Management functions are typically significant expenses for commercial real estate operators. The labor required to screen and interact with tenants, collect rents, prepare rent rolls, complete leases and maintain books adds up to a substantial amount of money and time. On top of these chores, staff must complete many other tasks, such as compliance, data collection, and analysis and reporting of results.

While no one is advocating for fewer jobs, technology offers the opportunity to streamline and automate many tasks that introduce bottlenecks and occupy staff members with busywork. Individual and organizational productivity improves when team members focus on work that more directly contributes to increasing revenue, such as sourcing acquisition opportunities, improving tenant satisfaction, strategic marketing and more.

When a property company can use enhanced productivity and efficiency to scale up, more work opportunities are created for the community. Asset, data and project management platforms can be used to automate tasks, help team members interact seamlessly and find important information quickly. The technology can also help organize their efforts, bolstering productivity and generating greater net operating income.

Managing the property

Keeping facilities energy efficient and in top condition are additional areas where technology offers support. On the front end of the development cycle, as well as when planning improvements, software programs such as building information modeling (BIM) can be used. This modeling tool helps stakeholders visualize various aspects of the future project, including everything from how the building will operate, serve users, and consume energy and water.

When the project is complete, facilities management (FM) platforms help track utility usage, user behavior and maintenance requests. Automated building data collection, monitoring and reporting — as well as online tools where tenants can self-schedule service requests — help management and maintenance staffs work more quickly, understand property conditions in real time and control costs.

Mortgage brokers can show clients how BIM and FM, in conjunction with asset and data management systems, provide greater perceived and actual value to stakeholders. This is particularly true of tenants and lenders that appreciate transparency, up-to-date insights, convenience and pass-through value.

New systems can be installed to minimize waste and long-term operating costs for newly constructed, renovated and redeveloped assets. Utilizing sustainable building materials and design strategies can also contribute to reducing water and energy consumption. Moreover, sustainable design technology promotes healthy building conditions, such as air quality and thermal comfort. These factors promote physical and mental well-being that fosters tenant loyalty, top-of-market rents, low vacancies and community goodwill.

A big plus provided by sustainable technology on a project’s maintenance side is durability. Part of what makes a material or design approach “green” is the capacity of the finished product to withstand years of wear and tear due to typical usage and environmental conditions. Leveraging durable materials significantly reduces planned and unexpected capital expenditures while extending the project’s useful life and marketability, including its appeal and demand.

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In the current economic environment, it’s prudent and crucial to survival for commercial mortgage borrowers to leverage the most innovative technology available to maximize profits and keep a competitive edge. As the competition for tenants gets tougher due to ample inventories of vacant space and downward rent pressures, owners and operators must concentrate on efficiency and optimization to meet the repayment expectations of lenders and investors. Mortgage originators can help clients find success in the current commercial real estate environment by advising them on the potential and promise to be found in the latest technology advancements surrounding automation and property management. ●


  • Rob Finlay

    Rob Finlay is the founder and CEO of Thirty Capital, an advisory, investment and technology firm serving growth-minded operators and investors. He is a forward-thinking entrepreneur devoted to building companies that support and advance the commercial real estate industry. With expertise in tech-enabled asset management and capital-market services and solutions, Finlay speaks from experience and insight as an active commercial property owner, investor and operator of more than 20 years. He has launched, developed and sold many commercial real estate technology and finance startups. He also recently authored The Wall Street Journal bestselling book, “Beyond the Building: How to Use Innovation to Create and Grow Your Commercial Real Estate Portfolio.”

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