Reducing the Real Estate investment risks

Challenge for Investors

conject supports all relevant real estate processes in financial institutions through an integrated and modular system of software services that focuses on process improvement. The software services have been internationally proven to significantly improve processes, automate routine administrative activities and minimise the risk of earnings erosion across the real estate lifecycle. conject supports core real estate processes such as: cost control during construction, maintenance and refurbishments structured property documentation regular surveys & appraisals asset/portfolio disposals

Cost control during construction, maintenance and refurbishment

After providing loans or other investments to real estate developers there is a need to gain visibility over progress. Significant changes in cash flow can occur during development and/or construction. Funding may be delayed or postponed due to lack of construction progress. Alternatively, tendering may progress quicker than planned or unplanned financial constraints may require earlier or higher loan payments than anticipated. Budget planning for operating existing assets needs timely and intensive interaction with Property Managers (internal and external) to agree on reliable cost forecasts for the short and medium term. This ensures that an assets value can be sustained or raised and that necessary financial resources are provided for the SPV, observing all applicable review and approval processes. Most of the time Developers and external Property Managers supply budget and cost data in spreadsheets. Since these spreadsheets usually comprise data accumulated from different systems (or from other spreadsheets) analysis across projects or assets/portfolios is virtually impossible, as is any standardisation of reporting. Moreover, calculations are rarely consistent which makes them hard to reproduce. Formulae can also be changed or corrupted, either intentionally or unintentionally. Since the format of data received is often incompatible for upward import to corporate finance systems, some or all of the data often needs to be manually input into these finance systems for onward incorporation into appraisals, budgeting, further analysis or balance sheets.

Cost control during construction, maintenance and refurbishment

conject offers clients a consistent approach & system for control of their investments across the construction period. A workflow-driven change management platform ensures all review and approval processes can be complied with by all parties, and to rapidly identify and arrange additional funding if needed. Reporting tailored to respective audiences allows everyone involved in a process to gain an instant picture on cost progress. Invoices, contracts and any associated documentation often contained in emails as well as change orders or specific tenant fit-out information, is associated with financial transactions and can be reconciled with approved budgets and invoices at any time. For any maintenance or refurbishment activities of existing assets, this same process can be applied. Any reporting needed to ensure comprehensive cost management can be obtained on the touch of a button, even when looking across phases. Budget planning will always be compliant with defined approval processes and allows the integration of external service providers. Cash flows can be planned per contract and are aggregated on project and/or asset level, taking any risk or reserve positions into account. In addition, responsible project managers can be informed of expiring warranties.

Property documentation

When acquiring new assets or developments for funds, operational responsibility usually transfers to new or existing external service providers. Their objective is to sustain or increase the assets value through day-to-day management. The property owner maintains responsibility for short and mid-term cost planning, and for management of warranty and security expiries, as well as any other budget, cost, and revenue planning during the assets life. At some point assets may well be sold in order to realise value. A complete & structured set of documentation is essential for a financially successful disposal. Any gaps in documentation can lead to significant reductions in sales price and can increase transaction risks, even after the completion of the disposal. It may even stop the disposition process. Since properties need to be appraised more regularly, a well-kept and comprehensive documentation record reduces time and cost for surveyors. External property managers need to focus on invoicing rent and service charges, as well as ensuring that each property is maintained to a high quality. Experience shows that for teams to comply fully with defined processes there is often a considerable demand for manual effort. Coordination between Property Manager and Asset Owner regularly happens via email that for a variety of reasons may not be maintained and accessible for the entire holding period. It may also be incomplete or inconclusive if different external parties are communicating directly. Tendering existing service contracts every 3-5 years also means that assets and portfolios are being managed by different service providers, with different people. A change in responsible parties makes the loss of information a very likely risk. Additionally, coordination of tenant fit-outs and refurbishments need to be coordinated by the service provider but should be structured and system-based to ensure information can be exchanged with the Owner and made visible. conject offers a unique system for maintaining comprehensive documentation related to assets, able to be contributed & accessed by Asset Owners and Service Providers. Any relevant documentation, e.g. registrar entries, permissions, lease contracts, insurance policies, tax records or technical maintenance documentation, are centrally stored in a highly structured environment and accessible for all internal and external process participants through the internet. This documentation provides all information needed at any point in time to minimise effort finding new tenants or buyers for assets and providing them with all documentation necessary for the due diligence. Moreover, conject offers a consistent data structure across all assets and service providers.

Property documentation

Integrating external Property Managers or other Service Providers, e.g. to coordinate refurbishments or tenant fit-outs, is easy with conject. It allows better control and management of an assets operation but also automatically documents any information exchange. We give our external Property Managers access to conject so that we can have access to any documentation at any time, without having to ask them to supply it. This way we save a lot of time and even more important ensure we have a full set of property documentation even if we re-assign the propertys management to someone else. Markus Rink, Head of Technical Competence Centre, Commerz Real. To ensure the property documentation is seamlessly kept up-to-date, conject may also be used to manage documents and design plans during new developments and refurbishments. After the scheme has been finalised, all relevant documentation can be selected and approved, and user rights are transferred to the operations team allowing for a complete document record to be implemented from acquisition to disposal. conject also supports all project-related cost-control activities during design and construction as well as throughout the assets operation. It covers budget planning and helps achieve strategic management goals by supplying a variety of standardised reports and forecasting tools for investment cost calculation, KPI analysis, change management and benchmarking.

Appraisals

Where large portfolios are kept for long investment periods, property documentation tends to be incomplete and inaccurate. For periodic appraisals, gathering all necessary documentation to achieve pre-set KPIs and valuations can become time consuming and may substantially increase costs. Often a propertys documentation is incomplete - important documents detailing a propertys value are missing or certificates and permits have expired. When the asset was purchased the vendor may have provided paper documentation, or worse, a DVD with thousands of unstructured documents. For a long time, the impact of this loss or lack of information could be ignored, since procuring the relevant documents would be in the future when the asset was planned for disposal. Since value appraisals have become more frequent, Asset Managers undertake the cumbersome and often manual process of information gathering more than once or twice a year, across a variety of assets. This not only includes the procurement of relevant documents but also validates the information already in place, gaining updates and collating everything together to provide to surveyors. Some of the documents need to be digitalised first, or they may need to be moved to external storage devices to allow the surveyors to gain access. In addition, the use of email to chase information, manage responses and agree commitment dates from external parties (lawyers, auditors, etc), can be a minefield. As surveyors need to review all documentation that is submitted, a well structured information platform can reduce time, improve project management and thus save money on each appraisal. As users can interact with conject through traditional email systems and/or through very simple user processes, information can be captured at source and submitted to surveyors for review in one simple process. Colleagues and external parties can be asked to procure or update documents which can have been pre-set as place holders, with the co-ordinating Asset Manager keeping full control of the process. For any future appraisal only new or updated information needs to be supplied, completing any remaining gaps. Further queries can be submitted (and answered) through the systems communication module allowing them to be forwarded to third parties for answering and fully documenting any exchange. A complete audit trail supports the appraisal.

Asset-/Portfolio Disposal

For any property owner, it is crucial to avoid gaps in their asset or portfolio documentation since this can inevitably lead to significant sale proceed reductions. It may also increase the transaction risk (resulting in later damage claims) or may delay or even stop a disposal. At the beginning of each sale, property documentation is being assembled for potential investors and needs to be reviewed and agreed with all parties participating in the transaction. A full set of documentation needs to be distributed to selected potential investors as quickly as possible. At the same time, each investor needs a simple way to access all relevant information at any time, and instigate queries ensuring they are dealt with in a timely and auditable manner. This way, the due diligence process will be swift and the disposal will go forward at the best possible price. If changes in documentation need to be provided by email or paper it is challenging for Transaction Managers to make sure all potential buyers have received the same information. Access to file servers may pose problems with regards to availability, access rights or data security. Again, this increases transaction and contract risks since the future owner may claim lack of crucial information during the due diligence, stalling the transaction or payments. There are challenges once a sales transaction commences: Updating a dataroom index is cumbersome, and often incomplete, since it relies on a manual process. Identifying the actual information needed takes considerable planning and then needs owners to deliver against the placeholders. Q&A, communication and document management across different systems make it hard for potential investors to rapidly retrieve a relevant piece of information. Collating all questions and answers and identifying where outstanding points require completion requires a highly diligent process. conject offers an internet-based transaction platform containing all relevant data and documents central to the due diligence process. It is available to all parties taking part in the disposal, with access regulated via individual security rights. The great news is that access to the system and subsequent interactions can be undertaken direct from a users email system.

Asset-/Portfolio Disposal

The system updates potential investors on any new updates to data or responses to issued questions, in a secure, private, environment. All potential investors are informed of any changes in a timely manner ensuring up-to-date and high-quality information to support due diligence. Even in the run-up to a planned disposal, conject can support the Asset Manager. At that point in time, if documentation is incomplete and unstructured, the data and documents essential to complete the process can be highlighted and procured online from a variety of parties (Property Manager, Lawyer, Surveyor, Auditors, internal departments). Since not all documents and data are even digital and may be spread across various companies, this reduces the time consuming, and often labour intensive exercise of data retrieval, or even creation. conject supports data dissemination and approval and ensures document quality and security. At the same time processes are significantly faster and documentation will be available at the earliest possible time. conject supports financial institutions in reducing their Real Estate investment risks, reduces the amount of internal routine tasks and maintains full control over all phases of the real estate life cycle, whether the investment is direct or indirect. At the same time, conject offers a future-proof solution to improve financial institutions ever more complex risk management processes.

conject 21-25 Church Street West Woking, Surrey, GU21 6DJ UK Phone: +44 (0)1483 712620 Fax: +44 (0)1483 756325 Email: [email protected] Internet: www.conject.co.uk