The Art of Asset Management

Ask ten limited partners to describe the most important issue facing Asset Managers and you'll likely hear eleven different answers. On the surface, the reason for this is obvious: the affordable housing industry is incredibly niche and varied, with unique demands for every company's portfolio of properties. However, there is a second reason for this phenomenon: human nature compels us avoid the reoccurrence of bad experiences. For example, if an owner has experienced devastating losses from a flood, that individual is highly likely to guarantee that all properties maintain proper flood insurance. Another manager may emphasize compliance because of past penalties, while a third may focus on the accurate distribution of tax credit gains/losses due to pressure from investors. All of these foci are important, but the best approach to asset management will balance forward-looking risk management with an investment strategy, rather than simply react! ing to past events.

Although the specific issues surrounding asset management can vary widely, the fundamental intent remains consistent. Owners seek management approaches that lessen the risk of financial loss while helping properties to increase in value. Although this article does not intend to expose every possible indicator, our team has experienced a theme of reoccurring needs to which owners assign importance -- all of which can be classified as risk management or investment strategy.

From a risk management perspective, maintaining proper compliance leads as the primary issue of concern -- and rightfully so. Compliance has a high level of risk because the process for many properties remains extremely error-prone. Owners rely on the diligence of property managers to gather all the necessary records. Yet with increasing turnover rates in staff and management companies, combined with a variety of other excuses, many property managers would be challenged to locate a specific document for a specific tenant that was collected twelve years ago. While fingers of blame are pointing in various directions, the bottom line result for the owner may include severe penalties. At Starta, we responded to this concern by providing a customizable cabinet of documents for every tenant. Documents are available indefinitely when digitalized, and this sort of centralized approach easily allows for regional managers to review documentation as it co! mes in -- fewer nasty surprises during site visits or audits, that way. Plus, owners can be alerted when any information is misfiled or unavailable.

Another driving concern for owners remains the proper insurance of all sites: enforcement of adequate coverage, claim tracking, and timely renewal of policies. While these tasks are not complex, property staff members are often inundated with daily emergencies that distract from lower-interval routine processes such as these. In addition, without some form of reporting the owners often are unable to quickly review information to ensure that proper insurance is in force. As a result, many owners rely solely on the site manager for critical functions of asset management, just doing check-ins a few times per year. To ease our client’s concerns, Starta offers a variety of services to monitor the enforcement and tracking of insurance policies and claims -- and, as with all information in Starta, authorized people can review the information at any time and from any location.

Many owners recognize the value of a proactive investment strategy. The review of financial budgets with resulting variances a key concern for syndicators and other partners. Asset managers also maintain a healthy respect for proper tax credit distributions. As a result, Starta discovered that the best service incorporates existing financial models. The system can be customized to transparently extract dozens, hundreds or even thousands of data points from Excel spreadsheets when existing pro-formas are placed in the system. With the ability to review financials across time, compared with budgets, and even across sites, all parties with a vested interest gain insights regarding the state of a project as well as the entire portfolio.

Property owners should not rely on a single individual to complete any task where that task alone could potentially destroy a business. People come and go, and, unfortunately, the organization cannot always rely on the actions of any one person. The best solution is to enforce a series of processes for data collection, centralization, and retention. A simple spreadsheet or even a notebook may provide sufficient insights for a few properties, but most property owners must eventually engage an enterprise-level software solution that can adapt to the quirks of their portfolio. Inflexible, canned solutions almost never suffice. The system must combine documents with data to deliver a holistic view of each property. And the technology must present real-time, accurate insights and alerts to key individuals to aid in the production of increasingly valued assets. It may seem obvious, but it bears noting: Asset management is vital for long-term financial success. Leaving it solely to overworked, front-line individuals at the site level is a recipe for the occasional meltdown.

Easing Efforts of Servicing Tax Credit Properties

A few years ago, the challenge for the industry was enabling developers to produce an ample supply of communities to meet the demand for tax credit allocations. Syndicators enjoyed the effortless trade of tax credits at rates nearing a dollar -- and occasionally, even more than a dollar. Those days have passed. The uncertain economy continues to reduce the value of tax credits. Concerns over compliance are emerging from institutions that purchased tax credits or dedicated dollars for grants. We have witnessed a radical shift in the industry from driving development production to a focus on compliance with existing properties.

Unfortunately for many, understanding the necessary set-asides for an entire portfolio of properties remains less than obvious. This challenge is compounded when funds are received from multiple sources, since usually those sources each come with their own list of requirements. Projects may receive LIHTC funds, historic tax credit funds, and several grants or loans from various organizations. The result is a unique conglomeration of obligations for each property. Multiplying the compliance demands by dozens or hundreds of properties creates the need for a methodical means to track all obligations.

Owners with a few properties may be able to use a simple spreadsheet to track compliance requirements. However given time, the accumulation a number of units will eventually exceed the capacity for tracking with a simple tool. But, what software is most appropriate for this effort?

By nature, this industry demands flexibility. Starta once tried to develop and deliver “cookie-cutter” solutions, but we quickly discovered that every organization is extremely unique – just as most every project is unique. Granted, there are several fundamentals such as the concept of set-asides and period of compliance. Unfortunately, specifics can radically change, the number of units can differ, the compliance period can vary, and much more. A system needs to provide structured flexibility.

Starta addresses this through an extremely flexible, web-base solution. The system has thousands of data fields available, however, you can select the (for example) thirty-seven fields that are important for your business. You can automatically generate compliance reports every week, month, quarter or year with real-time set-asides, vacancy rates, and rental income received. But, regardless of whether you are a Starta client or not, the important requirement is that your chosen system needs to allow your organization to wrap the solution around the business -- not the business around the technology.

A good compliance system will be flexible enough to handle all of your current compliance needs, as well extensible enough to meet any future needs that arise -- many times, the future needs arrive more quickly than you might expect. Whatever system you choose, just make sure that it is inexpensive to extend if you later find that you need to. This should be a conversation you have with any compliance vendor. The needs of your company are growing and changing with this brave new economy, and you want to make sure that your software systems will be prepared to grow and change with you without breaking the bank.