A path to better pan-European fund performance

Within the commercial real estate sector, fund managers can create a strategic advantage by leveraging their internal data to produce unique perspectives and gain new insights into market and fund performance.

More efficient ways of sharing, analyzing, and tracking aggregated and anonymized fund valuation data have been providing a competitive edge for many real estate funds and companies in North America and this trend is now expanding into other markets.

According to Gartner Research, organizations that align data sharing with business outcomes outperform their peers. Gartner suggests executive leaders employ data sharing as a business necessity and that external data sharing in particular is important for integrating crucial resources into data analysis and insight generation.

Here are the key reasons why using data sharing to gain an edge is important:

• Global commercial real estate investment reached a record annual total of US$1.3 trillion in 2021. This represents an increase of 55% from 2020 and with more investment dollars chasing investment opportunities, fund managers need to leverage all available insights to make fast, informed decisions.

• Digitization provides real estate organizations with access to a proliferating volume of building and user data while artificial intelligence and machine learning are enabling the timely and productive analysis of this data.

• As commercial real estate assumes greater importance in the investment world, investors have higher expectations for the information they receive from real estate funds. They expect meaningful indicators and comparative analysis that provides deeper insights into performance, risks, and returns of funds and their assets.

• Many investors are diversifying their holdings internationally. This is driving expectations for the Pan-European market to reach performance analysis parity with other markets.

In addition to leveraging the value created by index providers, fund managers can benefit from using their internal valuation data to acquire an understanding of fund and asset performance at a more granular level. This will provide another perspective on the key value drivers, performance indicators, and market/asset trends.

By aggregating their valuation data with their industry peers, funds can create a more granular comparison of fund and peer performance which enables a timely and accurate comparison of the performance of portfolios.

In the North American market, real estate businesses regularly run comparative analysis of fund and asset performance to peer sets for a detailed understanding of the drivers of returns. For example, NCREIF open-end diversified core equity fund (ODCE) Index, aggregates the index return of 38 open-end commingled funds pursuing a core investment strategy.

The ODCE index is one of the most consistent and referenced commercial real estate price indexes in the US commercial real estate market and is considered a leading indicator for market performance for institutional investors. By sharing data and utilizing advanced comparative analytics tools, they are now able to specifically pinpoint drivers of return and determine appropriate strategies to propel market competitiveness. This trend is now gaining traction in the European marketplace.

Data sharing across real estate investment funds builds robust anonymized peer group data sets

Appropriate, high-quality data such as property valuations and building operations information are critical for accurately determining drivers of performance. This requires aggregating advanced data from multiple sources in order to produce anonymized data sets that reflect critical trends in the market.

In the North American market, many funds contribute their performance data to anonymized data sets developed by trusted third-party providers, such as NCREIF. As more data is stored in the cloud and systems become more integrated, sharing anonymized data is becoming easier while still preserving confidentiality and privacy.

With timely, comparative data, fund managers can perform analysis to gain a clearer perspective on the underlying drivers of return. They can determine the contributors to individual property performance, the impact of individual assets on portfolio performance, or how a portfolio is performing within an overall market or relative to industry benchmarks.

By sharing data and utilizing benchmarking tools, fund managers can also rank assets to drive increased returns. And they can look into the attributes of underperforming assets to better understand the causes.

While intuition often serves as a good starting point, robust data enables verifying, understanding and quantifying information, validating a course of action, and ultimately, strengthens decision-making.

Comparative analysis aids a better understanding of the drivers of real estate investment fund performance

Aggregating data contributes to an important dimension of performance measurement by enabling funds to understand how they compare with peers and industry leaders relative to key performance indicators.

Advantages coming to European real estate investment funds

By contributing data to develop robust Pan-European data sets and comparative analysis, participating CRE funds benefit from many high-value advantages.

• Gain a complete picture of performance of their assets and funds

• Understand the impact of individual assets on fund performance

• Determine the specific factors influencing the performance of assets

• Pinpoint performance weaknesses

• Enhance the accuracy of internal and investor reports

• Establish appropriate goals and monitor progress

• Make faster, informed investment and capex decisions

With so much market uncertainty today, data sharing, and comparing offer a significant measure of reassurance – the ability to present a clear picture of asset performance. Ultimately, within the dynamic and competitive nature of the property market, how effectively real estate businesses capitalize on data will determine their market success.