CRE Success Demands a Streamlined Approach to Data

We spoke with Robert Cox from Moody’s Analytics about risk assessment, portfolio management, the state of the commercial real estate industry and more. Robert is working to develop Moody’s Analytics commercial real estate portfolio manager, which is designed to help lenders, asset managers and other industry professionals grow and succeed through proprietary data and unified workflows. 

Tell me about what’s happening now. What are the challenges when managing a commercial real estate portfolio?

Commercial real estate has changed rapidly, and as the industry becomes more competitive quick and reliable analysis is key to successfully managing any portfolio. However, most professionals are still relying on disparate data sets and cumbersome manual processes. This leaves gaps in due diligence, and prevents systematic, proactive and strategic evaluation of CRE portfolios. 

The current system is clunky and requires a lot of time and attention. This means more resources go into each deal, and the time per deal is slowed down unnecessarily. CRE is growing at an exponential pace. There’s a lot of competition for the same deals and dollars right now, and it can be difficult to make the right decisions quickly. If you have a way to speed up the analysis and data aggregation steps of the cycle, you’re able to increase deal quantity.

In this industry, you have to predict where the market is going. Staying ahead of the pack means you can drop or pick up assets at the most opportune times and find the right opportunities for your portfolio. If you are manually combining different data sets and creating bespoke reports, you aren’t able to see the market trends that can drive growth or the potential disruptors that introduce new risks.

How can portfolio managers understand and predict what strategies are working in their portfolio and which aren’t? How can they benchmark success?

Reporting is a huge component of the commercial real estate industry. Professionals need sophisticated analyses to continually monitor their properties. There are many layers of this type of analysis and reporting. 

First, you have your typical analysis of the first-hand data associated with your properties such as rent rolls and memos. Understanding the performance of an individual property is vital — checking and monitoring is an ongoing, never-ending process. 

Next, you want to layer on the core market data that allows you to analyze how your portfolio is performing compared to the market. Understanding evolving market trends, real-time developments across assets and comps is how you begin to make decisions about which properties to offload. This is why it’s so critical to be able to integrate individual portfolio data with industry data. And, as I mentioned before, speed is paramount, so seamless integration will make all the difference. 

Lastly, you should expand to alternative dimensions of risk and performance. Portfolio management always begins with analyzing traditional risk factors, things like rents and vacancies. This is the information that has always been and will always be vital to the industry. But to stay competitive, lenders need to begin layering in additional factors to their analysis. Climate risk, tenant risks, supply chain risks — these are all interconnected and can impact cash flow and the ultimate property valuation. Participants need to understand how these factors may affect their portfolio.

Can you give an example of this approach in practice? 

Let’s look at tenant analysis and risk as an example. There are two layers of tenant risk to consider, and having clean, aggregated data to analyze will help you understand your exposure to risk in both.

First, you have your individual risk. Say you have a lease with a private company, and they’re due for renewal. Beyond your own data of their rent payments, you would want to layer in insights that can influence your decision about continuing the relationship. Being able to quickly ascertain their recent business performance or any potential reputational risks helps you make a more holistic decision about renewing this deal.

Next, you have your broader risk. We’ve talked to businesses in the CRE space who just have no way to analyze their exposure to one particular tenant or type of tenant — no easy way to know how much of their portfolio is left vulnerable if this business were to fail. These things can and do come up, and you have to be aware and know how to prevent it from affecting your entire portfolio.

How can technology help get you to the place where you have this easily accessible reporting? 

CRE players need to be able to report on KPIs [key performance indicators] to stakeholders. Finding accessible, consistent performance metrics shouldn’t require combing through multiple platforms and dozens of spreadsheets. People need a source of truth for these metrics.

Before getting to baseline analysis, there’s a lot of work to be done on the data side. Data sets need to be normalized and aggregated in a way that users can slice and dice their portfolios in a variety of ways — so they can focus in on one aspect or zoom out and get the bigger picture. Manually cleaning data is time-consuming and prone to errors, so leveraging technology like automated intelligence and machine learning can quickly extract the relevant information so your team can focus on the analysis. 

Then, incorporating your data set into a ready-made platform that can automatically combine your data with the additional layers I mentioned previously — core market and sub-market data, climate risk information, tenant analytics, etc. — makes it easier to perform comprehensive analyses and report on the complete picture. Regardless of organizational size, participants need to understand their total exposure, concentration and breakout across asset classes and locations.

How is Moody’s Analytics CRE enabling this? 

It’s all about bringing the data and analytics into one place. We have the ability to support the entire portfolio management cycle from strategy definition to performance analysis to pipeline management. We are integrating data and analytics that help evaluate potential deals, analyze what has changed in the portfolio since you last looked at it, and compare a portfolio of properties or loans to the most relevant KPIs to support a data-driven decision-making process.

Moody’s Analytics CRE is creating this type of solution across all steps and industries — not just for portfolio management. People know the Moody’s name for our history in risk analysis and ratings, and this is another chapter in that history. 

We’re advancing the risk-assessment process for our clients. We are curating an industry-leading database of core CRE data by combining and validating data from different sources to provide an accurate view from every angle. We are also expanding the view to integrate alternative dimensions of risk to help drive better decisions on more complete data. And we are investing in intelligent solutions that leverage our unique data and analytics to streamline workflows and surface insights at the point of decision-making. 

With this industry, everything is interconnected. When you look at one individual component, there are companies that can serve those markets. But we are ensuring our solutions can work together to improve how lenders, brokers and investors work together throughout the entire CRE life cycle.

View more articles on CRE risk assessment here.