Grappling with Growth

13 min read

Industry collaborates on best approaches to asset management

Success has its costs. As portfolios grow, so do expenses, staff and responsibilities. Assets bring great value but come with great demands.

This year, we enter the fourth decade since the Low- Income Housing Tax Credit program was created to encourage real estate developers to set their focus on affordable housing. Businesses and government programs progress and though 30 years may seem like a long time it can be a mere blink of the eye in this evolution.

One day you were a small shop looking for the means to develop, but now you are a large operation, perhaps larger than you ever imagined, and you need to care for all you developed, as well as for those who helped you and those who financed you.

“We really don’t know what asset management is,” says Joe Wishcamper of WishRock in Portland, Maine.  “We’re learning it together.”

What are the components of an asset management team? How do you arbitrate the “healthy conflict” between asset management and property management?  What are the strategies to boosting net operating income? How and when do you prepare your properties for refinancing, recapitalization, or sale? How do you balance attention to your portfolio and the needs of individual properties?  What new tools are available to facilitate all of these tasks?

At last year’s Summer Institute, National Housing & Rehabilitation Association devoted an entire day towards opening up an industry-wide conversation on approaches to asset management. “This is an area where we can all collaborate,” says NH&RA Executive Director Thom Amdur. “When you get better at asset management it does not effect your colleagues’ success.”

That discussion resulted in a consensus among staff and membership that more conversation was imperative.  In the first week of June, members filled the meeting room at a hotel in Arlington, Virginia to capacity to take a deeper dive into some of the specific issues of managing their assets. Presenters shared experiences good and bad, as well as practices that worked and ones that did not.

“About 80% of our properties meet our budget for net operating income,” said Wishcamper in teeing up the conversation. “But that’s not good enough.”

What is asset management?
Asset management is a method of creating a culture of safety, of limiting risk, of maximizing cash-flow, of preserving reputation, and of achieving owner priorities. It can also be a method of creating a culture of cooperation, of bringing departments together to avoid conflict within an organization. By collecting, monitoring and analyzing information across your portfolio, you can make decisions and take actions that maintain and maximize its value. It’s also a method of pinpointing problematic areas that helps management to focus on what needs attention and to address small problems before they become big problems.

Asset management asks “what issues and questions are not being asked. Among the issues it addresses are:

  • Assuring ownership goals are being met;
  • Informing decisions on new investments;
  • Ensuring projects are built or rehabbed and leased up on time and on budget;
  • Ensuring compliance and performance;
  • Overseeing the performance of in-house or third-party management companies;
  • Preparing the asset for its next stage;
  • Mitigating risks;
  • Providing better reporting to investors.

Here are some of the practical (and replicable) takeaways from the ongoing conversation about asset management:

Building an Asset Management Department
There is no Bachelor’s degree in asset management. Organizations must think creatively when identifying the right talent for their asset management team. “You need to look at your job description really carefully and think carefully about where it is posted,” says Dena Xifaras, Vice President for Asset Management at Preservation of Affordable Housing (POAH). When hiring, Xifaras looks for candidates with a real estate finance background and has more success reaching out to her network for recommendations than posting a position to a job board. Xifaras also looks internally to see if there are individuals in other departments who would be a good fit for her team. “We have a lot of cross-pollination between different parts of our organization, including development, asset management, and property management. I think this is part of what makes POAH strong.”

Once a team is in place, managers look for ways to boost and measure their team’s productivity. Beacon Communities conducts 360 degree reviews, asking staff to evaluate management alongside management’s evaluation of them. “It was scary at first before this information was public to everyone,” says Mary Corthell, Senior Vice President of Asset Management, “but it’s been useful for the long-term growth of the company.”

When evaluating an asset manager’s performance, Corthell uses “quantified objectives,” looking at the cash flow, net operating income, and other goals related to capital events within their portfolio. Peter Desjardins, Vice President of Asset Management for Volunteers of America, evaluates asset managers based on their individual goals and work plans. He also checks in with the property managers in their portfolio.

In addition to salary and bonuses, managers look for non-monetary forms of compensation, such as flexible work schedules, paid time off, child care support, and social events. Some organizations consider their internal culture to be a job benefit. Xifaras says POAH hosts social events and encourages an atmosphere where co-workers drop by each other’s offices regularly to talk. As a result, the 15-year-old organization’s average employee tenure is seven years. Beacon Communities has an Employer of Choice Committee to help them identify what they need to be in order to attract people that will make an investment in the company. As more and more individuals for the Millennial Generation join the workforce, organizations have had to rethink their employee engagement strategies, but that may be to the benefit of the tax credit community as a whole. “Millennials want more than a job,” says Desjardins. “They want a mission and the affordable housing industry offers a lot.”

Managing a Management Company
When it comes to property management, there is no one-size-fits-all approach. While some organizations are vertically integrated, meaning they own both the properties and the property management company, other owners work with one or more third- party property management companies. There are benefits and challenges to both approaches.

In a vertically integrated model, an owner has more control over the day-to-day operations of its properties and information tends to be more accessible and flow faster across departments. On the other hand, they have more exposure to risk and lower level human resources or resident issues.

Owners who outsource property management have more energy to focus on development or long-term goals. It can be easier to remove a poor performing individual or remove the property management company altogether if an owners’ needs are not being met. However, information about the properties, including records or data from property management-owned software, is not as accessible to the owner. These issues multiply when an owner uses multiple third-party management companies, as is the case for Wiskrock Housing Partners & Investment Group.

“It’s challenging to implement new initiatives across nine different property management firms,” says Kevin Rose, Wishrock’s Director of Asset Management. However, Rose explained, working with property managers across the country allows Wishrock to be more flexible when looking for new deals. “We don’t need to worry whether a specific management company can cover a certain region where there is a deal we want to do.”

Wishrock developed an annual report card to monitor the performance of its property management companies. The report card includes statistics from the beginning of the year, like economic occupancy, NOI, budget variance, recent REAC score, and those same factors 12 months later.

But a successful asset manager needs to know how to do more than review statistics. Andrew Kerivan, an independent asset management consultant with Grenwold Real Estate Advisors LLC, says asset managers need to know how to measure success at the physical property as well. “Asset management needs to understand how to walk through a boiler room, assess the gutters, and examine other physical aspects of the property.”

No matter what the management or evaluation model used, communication is key. Jerry Lemmon, Executive Vice President for WinnResidential, sums up their approach as “bad news is good news.” Once a problem is revealed, asset managers and property managers can begin to work together to solve it.

Boosting NOI
“The asset manager’s job is to challenge,” said Charles Moran, Executive Vice President of Vesta Management. “How is a property operating? Can we do it better? The asset manager job is to design and recommend, the property manager job is to implement.”

Some strategies for boosting net operating income include:

Maximizing rents within government restrictions by closer monitoring of utility costs.
Beverly Hanlin, Director of Asset Management for the National Housing Trust, reported that actual usage was one-third of the utility allowance, which led to an across the board net rent increase of $150 per unit.

There are new analytic tools that make it easier to monitor actual usage, but at the same time there is some resistance within state governments and utility companies to provide the needed information.

Control insurance costs by implementing no-smoking policy. 
This will lead to a benefit on insurance premiums, thought owners of multiple properties, who claim the real value is in making an entire portfolio smoke-free. Implementation can be complemented with creating quit smoking classes. In general, residents are thankful for this policy and it has helped some buildings in marketing.

Carefully evaluate turnover costs.
Your staff may have the ability and capacity to provide painting, maintenance and restoration, but the time/cost factor may prove that in some cases outsourcing the work to vendors is less expensive.

Using better and therefore more expensive products may turn out to be cost saving by decreasing the number of work orders. This may seem counterintuitive, but better kitchen equipment, better bathroom faucets, tiles instead of carpeting may, over the long-term, help rather than hurt the bottom line.

Focus on Portfolio Management
A company’s focus on an individual property switches to a portfolio viewpoint once you have two properties, says Brendt Rusten, Senior Vice President for Asset Management of Dominium Development and Acquisition.

The role of the asset management team is to focus more on the portfolio’s group of assets than on individual assets.

Dominium now owns 25,000 units in 198 properties. Out of 901 employees, 23 are in asset management. Their asset management department is broken down into revenue management, utility management, portfolio analysts and portfolio management.

Each of the company’s portfolios has both a portfolio manager and a compliance person working as a team.

Budgeting is a top down process with target numbers set for the portfolio for income, expenses and capital needs. Individual asset budgeting follows and needs to fall within portfolio guidelines. Sizeability of portfolio results in reduction in per asset cost of common services including HR, IT, marketing and compliance.

Best Practices for Operational Asset Management
Within the larger structure of an organization, asset management is not always an easy or obvious fit. Asset managers have valuable insights to offer when considering new development, but still need to work closely with property managers to ensure existing properties maximize their value. Asset managers must collect, condense and consult large amounts of data from behind a screen, while also making time to get their proverbial boots on the ground of the properties. How an organization chooses to position and define its asset management department will have an impact on how it operates. “When asset management gets put in the finance department, they make financial decisions, but they don’t focus as much on the resident experience,” says Andrew Kervian, an independent asset management consultant for Grenwold Real Estate Advisors LLC. Asset managers who report to the company’s owners or a Chief Executive Officer may have more widespread responsibilities, including compliance and working with lenders and investors.

Organizations also must decide at what point asset management should get involved in a transaction. “We get asset management involved from the beginning,” says Charles Moran, Executive Vice President of Vesta Management. Jerry Lemmon, Executive Vice President of WinnResidential, agrees, “‘Now you’ve got it, go run it’ is too late in the game.”

For tax credit developers, maintaining institutional knowledge of a deal across departments is crucial. “Developers make promises that can get lost when it’s handed over to asset management,” says Joe Wishcamper, of WishRock in Portland, Maine. “Having a record that gets handed off, including motivations [for each decision], is really important.” Kerivan suggests memorializing important dates and creating a list of every single unit in a property and the programs associated with that unit. This is especially helpful as asset managers begin planning for future capital events.

Business Intelligence Tools
Innovative software and data packages are available or being developed that facilitate asset management and help in spotting opportunities to enhance portfolio value.

Portfolio Reporting
As portfolios grow, assessing their conditions and needs become more time consuming. Many owners work with multiple outside management companies with their own formats. You can find yourself reviewing 40 or 50 individual asset reports each of 15-20 pages.

Recognizing the need for more manageable information, Jerry Lemmon, Executive Vice President of the Winn Companies in Boston, one of the country’s largest owners of affordable housing properties, has developed a consolidated reporting system aimed at limiting portfolio review to one hour per week while not overlooking the outliers that need attention.

The Winn portfolio reporting structure includes:

  • WOPPER (weekly operating performance)
  • POPPER (property occupancy projections)
  • FLIPPER (financial levers indicators performance)
  • HOPPER (historical operating performance)
  • And reports on Rent Growth, Concessions and Open positions.

The system enables ownership to conduct more efficient weekly reviews, identify trends both good and bad, clearly understand portfolio positions, identify strengths and weaknesses of staff, spot the outliers, recognize problems and move quickly.

It also creates a sports standing-like comparison for property management, who look at rental activity, vacancy, maintenance stats, expenses and can see clearly how they are measuring up.

Energy and Water Use Management
Wishrock has set a corporate-wide goal of reducing energy usage by 20% by 2024 based on a baseline established by 2014 results. To achieve this, according to Trisha Miller, Wishrock’s Director of Sustainability, you need to keep pulling data that is as current as possible to track progress. “It’s like gardening,” Miller says. “You can’t just do it once. It must be sustained.”

To assist in this effort, Wishrock depends on Wegowise, an online tool for tracking utility data, benchmarking energy and water use, prioritizing retrofits, and measurement and verification (M&V).

But achieving energy efficiency and savings cannot be accomplished in the front office. It requires a buy-in from staff and residents, which can only be achieved by creating awareness by sharing information. Wegowise data is the basis for reports prepared by Miller and her staff to provide property-specific reports to property management that track on the progress of the company’s Energy and Water action plans and towards cost saving targets.