It seems that the usually reliable real estate industry is not so reliable any more. The industry has experienced a series of unexpected downturns, such as the underperformance of the newly developed real estate investment trust (REIT) model and the crash of the U.S. subprime mortgage market, which helped contribute to the run on Northern Rock. In this turbulent environment, it has become more important than ever for real estate organisations to make smart decisions. To do so, they need tools that can truly enable their strategic planning.

All too often, organisations try to manage using the same tools they’ve been relying on for years. This is particularly true in the world of real estate investment, despite the complex nature of strategic planning. The process typically involves several planning iterations, including the development of best and worst case scenarios, and often takes months of detailed analysis, calculation and re-calculation, reviews, re-forecasting, re-modelling and finally presentation. Yet executives continue to make significant decisions about large investment opportunities using complicated, interlinked sets of convoluted spreadsheets that are understood by only one or two people within the organisation, along with a large degree of gut feel. They do so because that’s the way it has always been done, in part because they lacked suitable systems flexible enough to support the types of scenario planning they require.

While this way of doing things may have worked in the past, successful real estate investors and property companies are finding it’s no longer adequate, particularly when it comes to meeting their strategic financial targets. Organisations now must be able to more accurately determine the value of their prospective investments and almost guarantee investors of the return they should expect. In addition, they must have realistic contingency plans that they can implement should their primary plans fail.

Furthermore, it is becoming desirable to provide real-time information to prospective and current investors. Being able to do so provides fund and portfolio managers with an important differentiator in the battle to attract investors in an increasingly competitive economy.

The importance of accurate decision-making tools is not limited to organisations that rely on outside investors to fund their holdings. Real estate owners also need a way to evaluate their decisions regarding properties they are contemplating purchasing, holding or selling. They also must be able to assess various capital deployment scenarios and understand debt and equity tradeoffs on a variety of investment alternatives.

Along with these considerations, the limitations of spreadsheets are further amplified in an environment that has been fuelled by progressively more sophisticated software and technology solutions. In comparison to the systems members of other industries use to make key decisions, a reliance on spreadsheets may be deterring real estate companies from reaching their true potential. Spreadsheets often are cumbersome and difficult to work with; require extensive, time-consuming data entry; hinder visibility into decision-making; and provide limited analysis capabilities. The time has come for a change.

That’s why real estate firms are now looking to forward-thinking technology companies with state-of-the-art business solutions to support their growing requirements. They need the types of tools that can improve analysis accuracy, speed decision-making, enable collaboration, increase reporting capabilities and are able to work with other enterprise systems.

New tools for today’s real estate companies
There has been a gradual evolution surrounding the thinking behind technology over the past decade. Initially organisations saw systems as straightforward electronic administrative tools, providing quick, repetitive programs for replacing high-volume manual transactions. Today, though, software organisations like Intuit are focused on providing technology solutions that offer better decision support and include business intelligence capabilities.

Real estate portfolio modelling and analysis software is now available for investment organisations to better fulfil their strategic vision and meet their goals. It goes far beyond spreadsheets to help managers and executives more accurately analyse investment opportunities and make better decisions based on all available information.

These more sophisticated solutions provide flexible, powerful calculation engines with configurable reporting capabilities. They can take the basis of most business decisions—raw data, specialist knowledge, time and opportunity—and provide flexible structures and the ability to employ multiple real-world financial options such as debt, tax, and fixed and variable-rate interest structures in a collaborative environment. They enable the development of decisions and contingency plans that are based on all available information, while allowing all stakeholders to contribute to the process. Planning can be performed in a fraction of the time it used to take to formulate multiple spreadsheets, email them to stakeholders, convene meetings, apply amendments and restart the validation process.

This technology can help throughout the real estate organisation:
• Portfolio fund managers can analyse the performance of the funds they are managing, model various investment scenarios and forecast portfolio- and asset-level valuations.
• Portfolio fund accountants can reconcile financial information into fund-level numbers, determine performance returns for portfolio and fund reporting, and provide support scenarios for acquisitions, cash flow projections and dispositions.
• Asset managers can determine property valuations, review budgets, forecasts and asset performance, and analyse value-added investments and the impact of valuations on the portfolio.
• The investor relations team can more accurately advise investors and create ad hoc reports.
• The transaction management team can determine the portfolio investment strategy, model multiple deals against pipeline targets, perform due diligence on a deal’s acquisition and plan the active operating and exit strategy for each investment.
• Senior managers can adjust key performance indicators, create new funds and new deals within a fund and define the exit strategy for each fund.

Finding the right fit for your organization
How do you determine if a particular real estate portfolio modelling and analysis solution is the right tool for your business? You should begin by asking yourself the following questions.

Does it support decision-making by allowing you to make multiple investment scenarios?
In order to make the best decisions you can about buying, selling or holding properties, your software solution should allow you to create and model multiple investment scenarios and easily change critical assumptions so that you can quickly determine the financial impact of different scenarios.

Does it support collaboration?
Old-fashioned spreadsheets were notorious for making it difficult, if not impossible, for various members of a team to work together to make planning decisions. The software you implement should make it easy for users to share the models and scenarios they have developed and allow them to gather input for more informed and collaborative decision-making.

Does it work with your other systems?
In today’s environment, stand-alone software is simply not an option. Look for a solution that can be integrated easily with your other property management and accounting tools.

Does it increase visibility into how decisions are made and the impact of those decisions?
Ideally, your solution should provide both customisable online dashboards and reporting functionality. Dashboards allow users to view real-time data about individual assets, portfolios and funds through a single interface on their desktops using easy-to-understand visual indicators. In addition, your solution should make it easy for users to create reports to support decisions and communicate their findings with other members of the team.

Does it support the use of different financial formulas?
The solution you choose not only should provide a library of standardised formulas for calculating financial information such as a property’s projected internal rate of return, but also should allow you create and store multiple customised formulas for individual metrics.

It’s time to make the switch
With the advent of real estate portfolio modelling and analysis software, the time to retire spreadsheets has arrived. By implementing a more sophisticated solution, you will be giving your staff the system they need to perform their day-to-day tasks more efficiently. At the same time, you will be giving your organisation a competitive advantage.