This article was co-written by Brian Zrimsek, Industry Principal, and Arik Kogan, Vice President of Financial and Investment Solutions at MRI Software.
The COVID-19 pandemic has created the most challenging planning and forecasting moment for real estate investors since the Great Recession from over a decade ago. In comparison, the current period is both broader and deeper in its impact on real estate, creating substantial needs for technology to help (re)forecast 2021 and the next few years, in spite of all of the unknowns.
What makes this challenge more complicated for the real estate industry?
Unlike other market downturns in recent memory, there is a uniquely human element to the one that has acutely impacted the real estate investment landscape since March 2020. With the turbulence of the last year behind us, Green Street is already noting a valuation recovery and pointing to a continued positive trend.
Global transaction volume hit record lows through 2020 (anywhere from 13% to 61% across various regions, according to JLL), but these numbers were brought down primarily by asset classes that investors do not believe will bounce back hard and fast in the post-COVID global economy. There is plenty of capital available to be deployed, and while office and retail transactions have been limited, other asset classes, like apartments, student housing, and hotels, are being sourced and acquired eagerly by private equity investors.
How to create opportunity out of the challenge
These phenomena affecting the market, and core assets in particular, create an unprecedented challenge for investors, but also an incredible opportunity for those equipped to navigate it effectively. Strategic planning through this pandemic is not just an exercise in economics and math, but an intricate web created by the intersection of the market with human beings. We will be working from home. We will be shopping online. And when we don’t, we want health, safety, sustainability and an experience worthy of the effort.
As more factors, data points, and potential scenarios come into play for real estate investors looking to make quick and confident decisions, modern technology has become table stakes. For short-term planning and forecasting, integrated planning and budgeting tools make quick work of using past periods to drive future period forecasts, while providing for both general and specific assumptions to be put into specific planning scenarios and then rolled forward from one period to the next.
Driving multiple scenarios is important given the lingering uncertainty, allowing leaders to understand the likely bounds of the playing field in front of them.
Short-term, operational plans should then be used as inputs to longer-term planning processes. With a strong basis in operational realities, longer-term plans can be more reliable for further scenarios and strategic planning, including:
- Planning cash flow in support of expense or capital activities
- Identifying debt covenant opportunities or issues
- Projecting valuations as part of acquisition and disposition scenarios
Using data to model scenarios and gain consensus on plans is truly important given the uncertainty of the current time. In addition to gaining consensus over future plans, you must also ensure that you are leveraging data to both manage risks and ensure compliance.
Learn more about how you can plan to win with financial planning and analysis technology.