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What are the best risk management practices for CRE?

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Corporate real estate (CRE) is the strategic management of a company's physical assets, such as offices, warehouses, and retail spaces. CRE involves planning, acquiring, developing, leasing, and disposing of properties that support the business objectives and operations. CRE also faces various risks, such as market volatility, environmental hazards, regulatory changes, and operational disruptions. Therefore, it is essential for CRE professionals to adopt effective risk management practices that can help them identify, assess, mitigate, and monitor the potential threats and opportunities that affect their portfolio. In this article, we will discuss some of the best risk management practices for CRE, based on the following aspects:

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1 Alignment with business goals

One of the best risk management practices for CRE is to align the real estate strategy with the overall business goals and vision of the company. This means that the CRE team should understand the core values, mission, and objectives of the business, and how the physical assets can support them. For example, if the company wants to expand into new markets, the CRE team should evaluate the feasibility, costs, and benefits of acquiring or leasing properties in those locations. Alternatively, if the company wants to reduce its environmental footprint, the CRE team should look for ways to improve the energy efficiency, sustainability, and resilience of the existing buildings.

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Michael Polk

Polk Properties /Thought Leader Forbes Business Council @ Forbes.com and Rolling Stone Culture Council/Mc Kinsey Co. Panelist
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It's important to have a procedure in place to respond to the maintenance of facilities to perform the basic maintenance. This will allow you to plan for the repair and maintenance of building systems when needed. Keep logs (Digital and on-site) . You also need to track your lease agings to know whether you will encounter Tenant Improvement costs. Repositioning costs can also be aided by doing these things as it will give you a view of the future. Training and having a procedure guide is something that can't be ignored.

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2 Stakeholder engagement

Another best practice for CRE risk management is to engage with the relevant stakeholders, both internally and externally, who have an interest or influence on the real estate decisions and outcomes. Internally, this includes the senior management, the finance department, the human resources department, and the business units that use the properties. Externally, this includes the landlords, tenants, brokers, contractors, consultants, regulators, and communities. By engaging with these stakeholders, the CRE team can communicate the real estate objectives and plans, solicit feedback and input, address concerns and expectations, and foster collaboration and trust.

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3 Data-driven analysis

A third best practice for CRE risk management is to use data-driven analysis to support the real estate decision-making and performance measurement. This means that the CRE team should collect, organize, and analyze relevant data and information from various sources, such as market reports, financial statements, lease agreements, property assessments, and user surveys. By using data-driven analysis, the CRE team can identify the current and future trends, opportunities, and challenges that affect the real estate portfolio, such as supply and demand, pricing, occupancy, profitability, customer satisfaction, and compliance. Moreover, the CRE team can use data-driven analysis to evaluate the risks and returns of different real estate scenarios and alternatives, such as buy vs. lease, renew vs. relocate, or renovate vs. sell.

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4 Scenario planning

A fourth best practice for CRE risk management is to use scenario planning to anticipate and prepare for the possible changes and uncertainties that may impact the real estate portfolio. Scenario planning is a method of creating and exploring multiple plausible futures based on different assumptions and variables, such as economic growth, technological innovation, social preferences, and environmental conditions. By using scenario planning, the CRE team can assess the implications and consequences of each scenario for the real estate strategy and operations, such as the demand and supply of space, the costs and revenues of properties, and the risks and opportunities of investments. Furthermore, the CRE team can use scenario planning to develop contingency plans and action steps for each scenario, such as diversifying the portfolio, adjusting the lease terms, or implementing mitigation measures.

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5 Continuous monitoring

A fifth best practice for CRE risk management is to conduct continuous monitoring and review of the real estate portfolio and its performance. This means that the CRE team should regularly track and measure the key indicators and metrics that reflect the real estate objectives and outcomes, such as the occupancy rate, the rental income, the operating expenses, the net present value, and the customer feedback. By conducting continuous monitoring, the CRE team can identify and report the progress and deviations of the real estate portfolio, such as the achievements and shortfalls, the strengths and weaknesses, and the risks and issues. Additionally, the CRE team can use continuous monitoring to update and adjust the real estate strategy and plans, based on the changing conditions and expectations.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Chito Rios Fallarme, MBA

DM for Consultation - Portfolio Management and Advisor in Global, Multi-Currency, Tax-Efficient Securities. Advisor to Business Owners.
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Keep track of global best practices in the industry. Have a pulse of business conditions of tenants and in general, demand and supply conditions for business rental space. And contingency planning ideas.

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What are the best risk management practices for CRE?

1

2

3

4

5

6

1 Alignment with business goals

2 Stakeholder engagement

3 Data-driven analysis

4 Scenario planning

5 Continuous monitoring

6 Here’s what else to consider

Corporate Real Estate

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What are the best risk management practices for CRE?

1

2

3

4

5

6

1 Alignment with business goals

2 Stakeholder engagement

3 Data-driven analysis

4 Scenario planning

5 Continuous monitoring

6 Here’s what else to consider

Corporate Real Estate

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