Counseling the institutional client

Real Estate Issues, Dec 1995 by DeClark, Gary K

Real estate counseling can take many forms. According to official CRE definitions, a real estate counselor is a real estate practitioner whose primary business is providing expert, experienced advisory services to clients for agreed upon fees. The client relies upon the Counselor for skilled and objective aid in the client's real estate needs, implying both trust on the part of the client and trustworthiness on the part of the Counselor. While being objective in the analysis, the Counselor maintains the client's best interest by considering and/or executing various strategies, developing available options and advocating the best position.

Among the various clients who require counseling services, this article focuses on the institutional user. Institutional clients are generally considered high-profile clients who deal with properties which are either larger in scale, larger in value, larger in size or typically part of a larger scale portfolio. These clients will oftentimes acquire, manage, renovate, rehabilitate and/or dispose of investmentgrade properties for their domestic or international owners. Many institutional clients require sophisticated, computer-based analyses of the multipletenant cash flow oriented parcels of real estate. Institutional clients typically will require a high level of expertise from the Counselor due not only to the high grade investment nature of the property, but also because of the large amount of money involved. Given the basis of institutional practice, how does the Counselor provide service?

Appraisal Possibilities

Those Counselors who also are appraisers may find ample work opportunities with institutional clients. Most pension fund managers, life insurance companies or REITs require annual portfolio appraisals either as a requirement of law or as corporate policy. Many also require appraisals upon property acquisition or disposition. Those clients subscribing to banking law dictum will require a full selfcontained narrative-styled report on each property. Others may need something less substantive--a summary report where only a limited appraisal is performed. In the latter instances, typical assignments suggest some sort of a restricted report or limited format. They might include a brief property and area description but would additionally include a detailed income analysis (usually a discounted cash flow on Pro-Ject^sup TM^, Argus^sup TM^, Dynalease^sup TM^, 0/2^sup TM^ or some other commercially available software), a thorough rental study, a complete market analysis or overview and a strong supporting analysis on improved property sales. Sometimes a cost approach is excluded in a traditional sense, but usually a land value analysis is included. Property inspections are sometimes substituted for desktop analyses. Other times only a sampling of the properties are inspected.

Depending on the requirements, an alternative portfolio review could be engaged where previously prepared discounted cash flow analyses are reconsidered and updated; any supplemental corroborating market data could be obtained by telephone research. This latter service provides a second look at properties already under scrutiny by asset or property managers.

With the advent of the technological revolution, clients will be more cognizant of speed and accuracy in their requests for services. Electronic data transfer of information on a matter-of-fact basis is just around the corner. Professionals who have data will be in enviable business positions. Computer analysis, now commonplace in the industry, will continue to be vitally important in real estate analysis. A word of caution suggests, however, that with such electronic information availability, more emphasis will be placed upon proper data input and more so upon proper data analysis undertaken by seasoned and experienced professionals. Clients who traditionally have relied upon larger, national appraisal firms are beginning to re-examine their policies in favor of contracts with smaller boutiquestyled firms where seasoned, experienced professionals have greater input into the assignment. Electronic data analysis, speed and computerization cannot take the place of experience and judgment.

Management Opportunities

Opportunities abound for Counselors in management areas, as well. Property and asset management services can be offered regularly to institutional users. Property managers maintain the day-to-day operations of properties either directly or indirectly. By knowing building operations, profitability can be heightened by a knowledgeable Counselor. Keeping operating costs in check and making a contribution to the leasing efforts could translate to increased returns, so vital in today's ultra competitive market.

Asset management, as distinguished from property management, is more concerned with global performance of the portfolio. Asset managers consider all the portfolio's components and attempt to maximize returns. Counselors may lend expertise to the asset manager's decision making regarding how best to maintain the portfolio.