One of the main characteristics of this last real estate investment cycle has been the growth in cross border capital flows that has had a huge impact on asset prices and increasingly dictates market pricing. Indeed, it could be argued that this represents a seachange in attitudes with global investors finally recognising that real estate is an investment asset class in its own right that should form part of a diversified portfolio alongside equity and fixed income.
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This “coming of age” for global real estate investment markets should be welcomed as any increase in the depth of the investor market should help drive increased liquidity and a demand for greater transparency. However, such changes in investment attitudes also require significant changes in how the current market functions. If real estate is to genuinely to compete with equity and fixed income for a place in global investment portfolios then the level of transparency, analysis and reporting has to be greatly improved so that investors can compare competing assets on a like for like basis.
Unfortunately reporting and analysis of both performance and risk in the real estate market remains rudimentary at best, particularly when compared to equity and fixed income. Simply preparing quarterly reports can take weeks or month rather than days and hours. This adds an unnecessary cost burden to both investors and managers as decisions taking longer to reach. Bringing real estate information and reporting standards into line the other investment asset classes is one of the greatest challenges facing the sector. Owners, managers and investors need to recognise that their data is one of their most valuable resources. By effectively managing, monitoring and analysing their own data they should make better investment decisions.
Ultimately all investment markets are data driven. Greater access to information improves transparency and increases liquidity. This is one of the main reasons investors remain heavily weighted towards liquid and regulated markets like equities. They can see what they are buying and quantify the risk.
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For real estate to provide a similar level of transparency investors have to start by demanding greater access to asset and portfolio information. In order to meet that demand the owners and managers need to organise their data assets more effectively and provide information in a timely manner. Answering simple questions such as “how many of your tenants are rated as at risk or failure this week?”, “can you show me the range of asset level total returns last quarter for your retail portfolio?” or “what is your quarterly projected cashflow for the next five years?” should take seconds not days.
A growing number of UK investment managers, developers and REITs have already responded to this growing demand for disclosure and effective data management. They have all recognised that the winners of the future will be those businesses that optimise the value of their data assets and deploy that knowledge to make better investment decisions. In order to achieve this, they have recognised that (i) their proprietary data is valuable and (ii) that they need to invest in their IT and information management processes.
What is required are new data management skills along with a willingness to share ideas across investment, asset management, IT and research teams. It won’t be easy but the rewards for those who are prepared to take the time could be very big indeed.