Technological boost

Managers are looking to technology as they face calls for more comprehensive cash flow projections, more frequent mark to market accounting and greater investor transparency. By Ronan Vance

After a tumultuous 18 months,  private equity managers entered 2010 with cautious optimism for better times ahead. Although this renewed hope was supported by claims from some economists that our deep recession is technically over, there is no expert consensus on when commercial real estate will begin to recover.

Without a doubt, this environment of uncertainty can create opportunities, but only for those with a combination of vision and a commitment to innovation, especially in the area of implementing technology that will increase foresight and help mitigate risk. These are the times to make changes to business process and infrastructure and build a more nimble enterprise in preparation for a recovery.

In spite of a dramatic slowdown in building transactions, construction and new investment activity, the information required to track and manage property operations, asset valuations and investment structures continues to increase in scope and complexity.

Banker sensitivity on outstanding loans and the process of accessing new debt capital require much more comprehensive and substantiated cash flow projections. In addition, more frequent valuations brought on by mark to market accounting rules and FAS 157 regulations as well as the need for greater investor transparency and more effective communications adds pressure to already burdened commercial real estate operations.

Operational streamlining

Recognising that this environment would be the ideal opportunity for change, The Krausz Companies, a San Francisco-based real estate development, investment and management company, looked closely at how it could streamline its operations.

One area of need was the time-consuming process of property and portfolio valuations and cash flow forecasting for the company’s various projects around the country.  The Krausz Companies’ team had created effective models and methods for determining forecasts, but with the industry becoming more volatile the timeliness of the information they were producing could be improved through enhanced automation.

“We needed to develop accurate cash-flow projections for up to 10 years, and get access to them quickly and reliably,” says Don Russell, chief financial officer of The Krausz Companies. Working with Yardi, The Krausz Companies adopted a valuation and modelling system that Yardi created directly within the property management platform.

Building on its reputation for innovation, The Krausz Companies is able to integrate property management data from all of its dispersed properties into the long term cash flow forecasting engine to generate accurate valuations and simplify revenue and expense budgeting. One of the benefits of this single system approach is that any changes to The Krausz Companies’ property leases or operating expenses are automatically reflected in real time in their models, giving instant, verifiable information without additional data entry or import routines.

Automation of the process also reduces repetitive tasks and the time it takes to create the range of analytics required to make the best decisions. “We now have the ability to easily change leasing assumptions to obtain long-term projections and gain a complete understanding of how our properties are performing,” adds Russell.

Lasting impact

The Krausz Companies has a rich heritage in asset advisory services, having developed, managed and repositioned more than $1 billion of commercial real estate. The company anticipates that the capabilities brought about by the new valuation system will further enhance its evaluation and analysis expertise, delivering even greater confidence to advise and partner on distressed commercial properties.

We may not know when commercial real estate will recover, but history demonstrates that it will. And so, it is progressive real estate companies like The Krausz Companies that take advantage of this challenging economic environment to increase operational efficiencies and get a leg up on the market and their competitors.

The message here is not to cast off this recession before you extract its valuable lessons, leverage its unique opportunities for advanced innovation and refined business process, and refocus the strategy that will have a profound and lasting impact to your leadership into the next decade.