Success Means More

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11 min read

Approaches to Asset Management

Success and its resultant growth may make the ownership and staff of a company happier, but it does not make their jobs easier. Success in the housing industry, affordable or other, usually means more—more buildings, more units, more residents, more staff, more income, more expenses, more data, more time, more everything. As portfolios grow, so does the need for asset management skill sets. As companies grow, corporate executives are forced to view the larger picture, but, at the same time, they cannot ignore the nitty-gritty. How do you maintain both the 30,000 foot and microscopic views of your business? Or, as Joe Wishcamper, founder of the Wishcamper Companies in Portland, ME asks, “How do you do data analysis without suffering from data paralysis?”

In response to member suggestions, the National Housing & Rehabilitation Association devoted a full day at its Summer Institute in July to a symposium on asset management. “As a discipline,” says NH&RA Executive Director Thom Amdur in his opening remarks, “affordable housing asset management is underdeveloped. We view ourselves as a peer network where everyone can come together to discuss solutions. This is a unique opportunity to learn from each other.”

“There is no one-size fits all approach to asset management,” says Wishcamper.

Members from companies of various sizes and from various locations presented approaches to asset management including staffing, systems, philosophies, priorities, mistakes and results.

“If we had formed a (asset management) department ten years earlier, we would have had better growth,” says Tim Cowles, CFO of Beacon Communities in Boston.

“We need to prepare ourselves to succeed as an organization,” says Tim Henkel, Senior Vice President and Principal of Pennrose Properties, LLC. “Management cannot afford to spend time on the wrong things.”

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,” says Wishcamper. 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.

“Asset management is not a core function of most of our companies,” says Wishcamper. “It’s not important to regulators. But it brings to the surface issues that are otherwise not being spotted. It gets us thinking about things we’re not usually thinking about.”

Approaches to Asset Management
“We get all these reports, but no one acts on them,” says Roger Yorkshaitis, Senior Vice President and CFO of the Gatehouse Group. “What do we do with our data?”

The role of an asset management team is to analyze reports and summarize the picture it paints of operations. According to Allen Feliz, Managing Director of Tax Credit Asset Management (TCAM), a company that provides both third-party asset management and asset management training, those responsible for this task must know “finance, the tax credit program, construction and engineering, and property management. And that’s just a start.”

So how do you structure asset management within your company? How do you find those capable of coordinating the effort and train others to support them?

During NH&RA’s daylong symposium, the 75 participants offered a wide variety of
approaches. Though many of the goals were shared across a wide swath of businesses, internal methods and strategies of achieving the goals were not.

Beacon Communities, for example, according to Cowles, now has a five person asset management department that includes a Senior Vice President, a director, a manager, an associate and a special projects director. This Senior Vice President also serves on an Asset Investment Management (AIM) Committee that includes CFO Cowles, the Vice Presidents of Development, Acquisitions and Property Management as well as the company’s CEO.

Wishcamper’s companies now have an asset management team of four, “but we’re only 50% of where we need to be,” says Joe Wishcamper.

Beverly Hanlin, the Director of Asset Management for the National Housing Trust (NHT), reports she is the only full-time employee focused on this area and “borrows” someone from accounting and someone from their sustainability department part-time to support her. NHT also utilizes third-party vendors to support their asset management operation. Hanlin and her support team meet quarterly with the property management companies of all of their individual properties to discuss the company’s goals.

At The Shelter Group, Executive Vice-President and Partner Jeff Hettleman includes overseeing asset management on his list of responsibilities and depends on their in-house property management company to play a large supporting role. “We manage all of our own properties and have very high expectations of property management,” Hettleman says, “We invest more in management than many of our colleagues, we have more staff, more senior people. We depend on them to compile the data.

“To accomplish this, we need to bridge how operators think and how owners think, so we’re talking the same language” Hettleman continues. “We work with our site management, with maintenance, to explain what the performance of these properties means—the ability to refinance, to add properties, to raise salaries, is all affected by what they do. And they get it.”

“We need everyone to focus on the things that drive value and not get too caught up in the details that don’t have real impact.”

“Asset managers are the coaches with the overview,” says Allen Feliz. “And property management is the team on the field.”

“Deals are fun and deals are sexy,” says Rick Wishcamper, CEO of the Wishrock Group. “Asset management is not fun and it’s not sexy and it’s kind of a pain in the ass. But being a good manager and operator is as important as being a top developer. So we’ve elevated Asset Management to our executive committee right along with the director or origination and the director of development to show how much it matters.”

Investor Viewpoint
“The most important thing we do is manage risk,” says Marianna Votta, Senior Vice President of Bank of America Merrill Lynch, “We identify, classify and quantify risk.” Votta oversees a staff of 25 that manages $12.5 billion in tax credit housing investments in 4,800 properties.

Sophisticated active investors need a long roster of detailed information to properly evaluate their ongoing relationship with a property, a need increasingly becoming associated with asset management staffs. And, since more often than not developers try to build ongoing relationships with a short list of investors who will continue to support their efforts, the provision of such information can have long-term effects on a developer’s future.

Votta then provided a list of the risks a major player like Bank of America Merrill Lynch considers at various stages of a deal, many of which might intersect:

  • Strategic risk—“Has the project missed its mark?
    Is the intent of the project not working?”
  • Market risk—“Has something happened in the
    specific market that changes the situation. Is there
    additional competition?”
  • Economic risk—“Is the projected cash flow there?
    If not, is there room to raise the rents?”
  • Liquidity risk—“Has there been a regional downturn?
    Are we going to have to carry some properties?”
  • Construction (Lease up) risk—“Are there difficult local
    conditions? Are we in the vicinity of a problem? Is it
    going to effect the abutter?”
  • Litigation risk—“Always a possibility.”
  • Compliance risk—“Are we renting to the people we
    are supposed to rent to according to regulations?”
  • Operational risk—“Are there insurance or safety
    issues that can lead to litigation? Is the
    carpeting or flooring a problem?”
  • Environmental risk—“Becoming
    more of an issue asregulations
    increase.”
  • Reputation risk—“The biggest risk
    of all.”

Bank of America looks at all these risks and classifies them. If there are problems, are they transitional that can be fixed in the short-term? Or are they high risks which make loss imminent? From the evaluations of risks on the grid, the bank compiles a watch-list. On those properties they ask, how do we turn it around? How long will it take? Is it worth the cost? And, finally, do we have to write a check? Is it more expensive to stay in or to get out?

Creating Your Asset Management Data System
Beacon Communities’ portfolio has grown to 12,000 apartments in 70 locations.
Preservation of Affordable Housing’s (POAH) portfolio has grown to 8,743 apartments in 76 properties in 10 states.

Each of these Boston-based operations has about 400 employees with a lot of information in their heads and reports in their drawers.

How do you get all the information out of your staff’s heads and gather individual reports into a central repository that enhances collaboration and sharing, improves reporting, drives priorities and enables information-based decision making?

The game changer is a versatile asset management system and—just as on the human side of asset management organization—there is no one-size-fits-all solution.

In 2013 and 2014, POAH and Beacon Communities respectively sought out the best system to help fulfill their management’s needs and achieve their goals. The assignment rested on the shoulders of Dena Xifaras, POAH’s Vice President of Asset Management, Darcy Jameson and Mary Corthell, (Development Director and Senior Vice President of Asset Management respectively) at Beacon Communities, who combined their experiences into an explanation of the system development process for NH&RA members.

Each company needed a system that would hold:

  • Monthly and quarterly operating results
  • Key documents
  • Reporting
  • Milestones
  • Long-term projections
  • Capital needs and replacement reserve analysis
  • Property dashboards and watch-lists
  • Critical information relative to the REO portfolio.

Before going any further, each began by reviewing systems utilized by peers including developers, property and asset management firms, syndicators and investors. They then vetted the available technologies which presented them options of customized systems, buying another company’s custom system, extending the capability of their property accounting system or simply buying an off the shelf system.

Both companies eventually, on their own, decided to go with Integratec, which they are both extremely happy with. In addition to its speed and flexibility, Integratec’s association with the CohnReznick accounting firm assures the system developers have a deep background in the specifics of the affordable housing industry.

Among the hurdles Xifaras, Jameson and Corthell warn about are the necessities of feeding accurate data and the significant commitment of staff time. From the beginning of researching the product to implementation of the asset management systems it took over two years.

Where is asset management headed?
The need for affordable housing in America is not going to be solved imminently. Mayors of many American cities have been pushing this issue to the fore, in some cases, as a successful campaign position. As the industry matures, it is also entering a period of consolidation. So portfolios are going to continue to grow and as they do so will the need for better asset management techniques and approaches.

The day long discussion sponsored by NH&RA in Newport, Rhode Island is just the first step of what’s going to continue to grow in importance to affordable housing developers, owners and investors.

NH&RA prides itself in providing the forum in which the affordable housing community can openly share good ideas and the community has responded with an unusual openness and willingness to put their best ideas forward for colleagues and even competitors to benefit from. Later this Fall NH&RA will launch a new Council dedicated to building the internal capacity of Asset Management at our member companies.

Now that we’ve teed up, there is a lot of additional ground to cover. Watch this space.