What is Asset Management?

Asset Management is a term that is widely used in the financial management, banking and real estate industries. Though at high-level there are a lot of similarities of the role in the different industries, there are also very unique aspects as well. 

In this article, I will cover what asset management is, the different areas of focus and the various skills required as it primarily relates to multifamily real estate investing.

Asset Management Defined

If you are new to multifamily investing, it is easy to get confused between property management, asset management and portfolio management. 

Property Management is the execution of day-to-day operations of a property. The property manager, leasing agents and maintenance staff are responsible for collecting the rents, finding new tenants, addressing work orders, etc. and ensuring that the communities are safe and well kept. Property management is the daily ‘blocking and tackling’ of property operations. In addition, most property management companies also provide accounting, human resources and payroll services. 

Portfolio Management is a higher level role that reviews multiple properties in varying locations to assess the health, trends and progress of an entire portfolio. This function usually found in companies with investments in a large amount of units and/or in multiple asset classes.

Asset Management is concerned with maximizing the potential of each property by ensuring that the business plan targets are being achieved. Asset management is a multi faceted role that requires an asset manager to deeply understand operations, have strong aptitude for financial analysis and have strong project and people management skills.  

Asset management is typical thought of as a post-acquisition activity, but I believe it is a role that spans the entire investment life-cycle including pre-acquisition and disposition. 

Key Areas of Focus:

The following are the key areas of focus for an asset manager:

Operations - Ensuring that the property is operating efficiently and effectively to meet the goals and objectives of the business plan. This requires an understanding of the various processes for increasing rents, getting new tenants, managing retention, collecting past due rents, monitoring work orders and deferred maintenance, etc so that areas of concern can be identified and rectified. 

Financial Analysis - Asset managers must be able to use the data from operations and analyze them to identify key trends, issues, opportunities, calculate ROI, etc. and be able to effectively present this data to management for decision making. Asset managers should also be able to analyze property P&L’s, Balance Sheets and Cash Flow Statements to compare performance to projections and re-forecast and make adjustments, as needed. 

Management - As the title describes, asset managers must have very strong project and people management skills. Asset managers need to be able to monitor multiple initiatives simultaneously and pull necessary levers to achieve targets. Further, asset managers need to have strong people management skills as they need to work closely with and motivate the property management staff to deliver as per the plan. They also need to be able to manage direction from ownership and the needs of investors. 

Types of Asset Managers:

There are essentially 3 ‘types’ of asset managers that I have seen in the industry. 

The first type is the general partner (sponsor/syndicator) turned asset manager. General partners come from many different backgrounds that may or may not bring all the skills needed to be successful as an asset manager. In the beginning, as a general partner starts in the business, they naturally assume the role of the asset manager and augment their lack of experience by leveraging the property management company, other partners, etc. It should be noted that someone who is good at finding a deal and raising money isn’t necessarily fit to be a great asset manager. 

The second type is the property management professional turned asset manager. These asset managers have a really strong understanding of property operations on a day to day and tactical level. However, they often lack the training and experience with financial analysis and strategically pivoting to hit business targets. 

The third type is the institutional asset management professional from the investment management world. These asset managers usually have education in finance/business and experience in asset management from an institutional perspective where they managed assets for large pension or sovereign wealth funds. They usually have very strong financial acumen and are adept at the numbers, but don’t have the day-to-day operations experience. 

Summary:

Asset Management is a multi-disciplinary function that is critical to the success of large real estate projects like multifamily. As described above, a strong asset manager must have a good blend of experience and skills across operations, finance and management. The best asset management functions not only have great people but also have very defined processes, often enabled with technology, to effectively maximize asset performance.

In the remaining parts of this series, I will dive deeper into the specific roles of an asset manager.

About the Author

?Shane Thomas is co-founder of Catalyst Equity Partners, a Texas-based private equity firm focused on helping busy professionals earn double digit returns through investing in apartments. To learn more, visit www.catequity.com and connect with Shane on LinkedIn and Facebook.