For an asset management firm, impactful market changes and unforeseen property expenses can happen at any time, causing disruptions to the budget of commercial real estate property.
Usually, a review at the end of the quarter will smooth things out over time, but can you afford to wait 60 days until the end of the quarter for decisions you need to make now?
We think not, and according to our recent survey of over 400 global commercial real estate executives, 69% of those surveyed believe there is significant potential to improve monitoring and analytics of property expenses.
One way to close this gap is through the implementation of a continuous budget, reviewed monthly. While the thought of additional budgeting may seem overwhelming, here are three smart reasons why today’s technology can make a continuous budget in commercial real estate a viable and impactful solution for your organization.
1. Decreased time to reporting
In the past, re-evaluating the budget monthly was simply out of the question. Beyond the process required to lock in the budget at the start of the year, a formal quarterly review involves updating and consolidating property performance, revenues and expenses each time.
To get this, multiple email chains and back-and-forth communications with property managers are necessary to understand the line items and correctly update models accordingly. With so much to prepare, little time is left to analyze and make critical decisions. Instead of this confusing and time-sapping process, modern software tools help streamline and, in many cases, skip continuous budgeting’s prerequisites – capturing and inputting data. To accomplish this, these tools allow data to be input by all stakeholders into one central system.
This provides a space for property managers on the ground to update day-to-day actuals using accounting systems that can be synced to a central budgeting solution for crucial decision-makers. As actuals flow into forecasts, the assets manager can see how the changes will affect budget and performance projections. No one needs to build or update a model, no references need to be checked, and the worry of a calculation error is eliminated.
2. More time to assess asset performance
Put simply, less time preparing means more time free to evaluate and make intelligent decisions. The ability to monitor how the budget is progressing on a defined schedule can reveal various vital insights that give you the upper hand. Knowing a significant budget variance sooner can help you determine its future implication on performance and how it may have developed.
For example, if operating costs are trending higher or an unexpected expense was incurred, waiting until the end of a quarter will probably not help. However, acting immediately may lead you to hold off on planned variable expenses and re-distribute the unplanned variance to maintain projected returns for the asset.
If addressed at the end of the quarter, you may have gone ahead with planned improvements that result in higher expenses than the property can afford to hit it’s projected returns.
Alternatively, if there has been a trend of lower operating costs, an upgrade to attract higher-end tenants could be started earlier than planned to shorten the time to capture higher revenues from these more profitable tenants.
Having more time to assess a budget means identifying weaknesses in portfolios earlier, smarter allocations of capital and a more confidence from management in your ability to handle issues as they arise throughout the year.
3. Everyone & everything in one system
Finally, when all is said and done, the work and actions are still in one place. The communications to-and-from the property manager, the updates to forecasts, and the reasoning behind the decisions made.
All accounted for and documented with an audit trail. Each time you need to review your budget, there is a central place to initiate the process, without starting from scratch. Reviewing work records by other parties on your team makes it easier to input and edit the information to make the necessary decisions going forward.
On top of this, you can also easily report on and use dashboards for full transparency to the top of your organization, so the entire team is aware of what has been and needs to be done. Leveraging the benefits of a continuous budget is no longer an impossible achievement. When data is streamlined and consolidated continually, trends are easier to identify.
Having information updated regularly, making intelligent decisions to lock down tenants if a downturn is predicted or investing in outreach campaigns to find new tenants when there are signs that the market is on the rise is easy.
Modern organizations know that speed wins, so why wait on the information you need now when the market and your competition do not wait for you?
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Altus Group
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