Ah, 2019, you wily rascal you. You strung us along with your record-breaking rental growth and transaction volume. The people I met in 2019 were either giddy with celebration of another year of strong performance, or eyeing the situation with utter skepticism, asking “what’s the catch?” I found myself speaking at several MRI and industry conferences around the world, discussing both the lucrative exploits of real estate investors as well as the likely timing, severity, and characteristics of the next downturn.

We of course considered the cyclical nature of the real estate cycle – the transition from recovery to expansion to hyper supply to recession – and predicted that this cycle, like the last one that came to an abrupt end during the 2008 global financial crisis, would likely be a short cycle…though, with a much milder downturn that, for many, would be barely an inconvenience.

Oh, but how wrong we were. Enter 2020 – 2019’s evil cousin. If I had stood up at those conferences and said “Adjust your investment valuations, my friends, and hold onto your cash, because your real estate investments, regardless of asset class or location, are going to see sharp declines in KPIs due to a global pandemic in Q1,” I’m sure I would have been booted out of the building with no buffet lunch to show for it. I might as well have been saying that aliens in giant spaceships will hover over each major city on the 4th of July and destroy all the real estate in a 10-mile radius with green lasers!

But here we are, and whilst the real estate industry dedicates a lot of attention to managing receivables and their financial run rate, there is much to consider in terms of property valuations and the cap rates that are on the rise. Sure, transaction volume has nosedived, with the exception of distressed assets that the PE community are lapping up, so perhaps folks are willing to ignore the near-term volatility. But what about the longer-term effects of this pandemic on how our valuation market chooses to function in the future? Let’s look at a few possibilities:

1. A renaissance for discounted cashflows?

Many regions of the world do not standardize their portfolio and investment valuations around the DCF methodology, and perhaps that will need to change. The consideration of NOI and NCF over a prolonged hold period means you can reduce the impact of any cashflow volatility that occurs within that timeframe, or even offset it by applying a stabilization factor at different points in time to negate anomalies.

On the other hand, the standard 10-year hold period itself may need to change, since the once-lauded steadiness and predictability of real estate investment is now a debatable concept. The modern real estate market is forced to evolve more frequently, primarily due to tenants and residents adopting new technologies and innovations, which in turn alters their expectations of where they live, work, and play. This type of flux is extremely difficult to predict over a 10-year timeframe, thus potentially discrediting any portfolio valuation based on assumptive data that extends that far into the future.

So how do you address this dilemma? One option is to leverage reliable software. For example, MRI Valuations has the means to navigate this issue and accommodate any eventuality. In one tool, property and portfolio valuations can be generated using multiple valuation methodologies – DCF, Equivalent DCF, Capitalization, Cost, Hardcore, Term & Reversion, and more – and the results can be compared to one another on a rolling monthly basis. The hold period for a DCF calculation can also be adjusted to any number of years, or automatically tapered to the end of your forecast timeframe as you roll from one period to the next.

2. An evolving dataset to manage the big picture

The current pandemic has also proven that cashflow and tenancy data alone are insufficient to determine a property’s true value. Other data points, and qualitative data in particular, are becoming more and more pertinent, such as sales and footfall in retail, automated communications and facilities in conventional residential, environmental metrics across the board, and so on.

This was already a changing landscape ahead of COVID-19, but appraisers now have the additional challenge of limited access to the physical site due to social distancing. Those responsible for collecting and reviewing all this information will rely more and more on third-party data providers and virtual/augmented reality to visualize the site from afar.

Services like MRI’s Data Management Services that make data collection, normalization, and aggregation a quick and simple proposition – regardless of data source and format – are emerging as essential services for most medium to large-scale real estate businesses. Asset/portfolio management tools like MRI Investment Central and MRI Analytix that empower users to visualize this data, including custom attributes, begin to deliver even greater value and ROI.

3. Not just an appraisal…an advisory service

Pre-COVID, third-party investment valuation service providers were primarily responsible for delivering a current appraisal based on tenancy data and cashflows. Today’s job description is greatly expanded. In addition to managing many more data points, which in many cases are client-specific, the market will likely look to these seasoned professionals to provide more than just today’s value – they could assume the responsibility of an advisory service to help maximize value over time and weather the storms ahead.

This means performing sensitivity analyses; shocking a portfolio with pessimistic hypotheticals, such as tenant insolvency, reduced sales activity, government restrictions that impact cash flow, stricter lending criteria or higher margins, market rent and inflation fluctuations, and more. MRI Asset Modeling and Fund Modeling solutions build on the fundamentals for producing a property or portfolio valuation by layering on scenario modeling capabilities to deliver valuations, returns, yields and other metrics based on any number of potential futures. We will likely see valuation service providers being asked to become more and more savvy in this area, thus adopting more sophisticated tools than before.

Does 2020 have more curve balls up its sleeve? All predictions aside, the best path forward for real estate firms is to create business agility through flexible tools and processes. New challenges may have long-lasting effects on the approach to real estate valuations in a post-COVID-19 market.

Performing a complete reforecast for your commercial real estate business is not a common task. It typically takes place only in the event of sudden economic shifts, like the one triggered by COVID-19. When your commercial real estate firm went through the budgeting process in Fall 2019, you probably didn’t account for the impact of a global pandemic on your business. For many properties, it’s time to throw your best laid plans out the window and create a new forecast, but where do you start? What are the main areas to consider?

Here are some tips to keep in mind when diving into commercial real estate reforecasting:

A new basis for assumptions

The whole point of budgeting is to make an educated assumption as to where your business is going to land at the end of the calendar year based on lease contracts, actual and historical data. But what historical data can serve as a reference for something as unpredictable as COVID-19? You will have to use your actuals from March and April and incorporate timelines from your property reopening plans. MRI Budgeting and Forecasting software can distribute variances from what actually happened through March/April over the rest of year for the whole workbook or, as is more applicable now, differently from account to account.

Finding the variables of new importance

You’ll need to identify areas of your commercial business that have been disproportionately affected by the pandemic, which are likely to vary based upon property types, locations, and tenant mix. Certain categories of maintenance, such as cleaning, might actually go up in terms of keeping the property running. Rent will play a bigger role, especially if tenants have trouble paying or need to negotiate deferred payment agreements. If you won’t be able to rely on certain revenue streams, then everything from landscaping costs to capital projects may need to be reevaluated.

Commercial real estate budgeting software from MRI offers an efficient way to draft a new budget and start pulling levers like these to test for different outcomes.

Budgeting and forecasting for what lies ahead

You might be inclined to keep some or all of your leasing assumptions in the new forecast, but many properties will need to start over. Will more deals trend toward shorter lease terms or smaller footprints? The future of commercial office space could look very different than it does today if corporations decide to reevaluate their needs. Effective space management tools and forecasting based on new assumptions can help your business reassess the different best and worst case scenarios in a market that looks completely different than your previous assumptions. A short-term plan will impact the long-term strategy for your business, and technology can provide the agility to respond to change while driving the business forward.

Commercial real estate organizations need to make reforecasting a priority for the business. Even with continued uncertainty in the economic environment, evaluating the impact of different scenarios on your organization will influence strategic decisions for the business. The ability to leverage technology to operate with agility has never been more essential, and MRI’s Budgeting and Forecasting software can help you pivot efficiently and stay focused on running your business.

The month of May 2020 finds many commercial landlords and tenants stuck between a rock and a hard place. The need to mitigate business risk resulting from COVID-19 is front and center, and decisions regarding expenses, cashflow, and operating costs can no longer be delayed.

During April, many landlords and tenants were looking forward to receiving capital from government programs such as Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL), and they kept an eye on their respective state’s plans to reopen. Tenants behaved in a variety of ways during the month – some paid the rent, others asked for deferment, abatement, other agreed-upon options, or remained silent.

The month of May will bring tougher challenges and complexities. Many businesses will get their PPP/EIDL or figure out alternatives to ensure their own business continuity. They may still ask for forgiveness in May, but if their state has officially re-opened, their legal claim to abatement may be nonexistent, especially if they have received government funds. Will May 10th be a day of reckoning, as most rents will be due at the end of a 10-day grace period?

Leverage the lease to determine negotiation options

In terms of payments, the month of May represents a turning point where conversations between landlords and tenants begin in earnest. Landlords deal with delinquent tenants and decide whether to forgive, or send them packing. Tenants explore the types of protections they can receive based on their lease – if their state still allows them to utilize the space.

Landlords – If your tenants have not paid, you may need more insight on your lease terms to understand what rights you have during a negotiation.

Tenants – If you plan on asking for continued forgiveness or deferment, ensure that you’re in compliance with your lease. Understand your risk of getting kicked out, especially if your state has re-opened.

While both parties have different motivations and challenges, they have one thing in common: the lease is the governing document that forms the basis of negotiations and legal assertions.

Identify lease liabilities and exposure

Landlords and tenants need to review the lease thoroughly to determine liabilities and exposure. Before any legal work begins, important items in the lease need to be identified. These include, but are not limited to: condemnation, force majeure or act of god, SNDA, casualty, damage and destruction, co-tenancy and go-dark provisions, deprivation of services, late fees, notice of default & right to cure, beyond landlord’s control, constructive eviction, breach of covenant of quiet enjoyment, right to injunctive & equitable relief, and many more.

Uncover lease insights with smart OCR

Since time is of the essence, commercial landlords and tenants need to focus on evaluating their options and making decisions, instead of spending days reading through complex lease documents to find relevant clauses. Traditional lease abstraction involves manual search of key clauses across leases and other contracts, which takes up valuable time and has a high risk of error. MRI’s Lease Insights solution leverages smart optical character recognition (OCR) to quickly and accurately uncover lease data, identify key clauses, and save significant time.

At MRI, several of our clients are using Lease Insights to determine the best way forward for their business. Here are some negotiation options being offered by US landlords that use the solution:

1) Pay no rent for three to four months, and spread the accumulated balance out over the remaining life of the lease

2) Pay no rent for three to four months, and the accumulated balance is added on as a bullet payment at the end of the lease (last month)

3) No payment for three to four months, but the lease is extended by another 12 to 60 months at a rate that is higher than the usual rent

4) Pay a 50 percent reduction in rent for six months, with the remaining 50 percent spread out or tagged to back end

5) Enforcement of lease terms, drawing on security deposit or line of credit, and then terminating the lease

Ready to start using MRI’s smart Optical Character Recognition (OCR) technology to search key clauses across your portfolio of leases and other contracts? See how you can get started today.

Earlier this week, Barclays boss Jes Staley admitted that the banking giant will be looking closely at how it uses its global office space, given the recent widespread shift to remote working. Perhaps his most telling quote: “The notion of putting 7,000 people in the building may be a thing of the past.”

In a previous blog, we discussed some of the immediate impacts of the coronavirus pandemic on office workspace, and also considered some of the longer-term trends that might emerge. It’ll be no surprise that we suggested a potential rethink when it comes to the future use of central, large-scale corporate offices – but such a statement from the leader of a major, international organisation hints at that potential becoming a reality sooner rather than later. But, while it seems certain there’ll be change, what does that actually mean and what will be the wider impact?

Space as the new frontier

Across all types of real estate, particularly for businesses occupying large office portfolios, there’s going to be a huge focus on space management and the utilisation of space. This will come to the fore in two main areas – how occupancy can be optimised to better control and even reduce costs, and the best possible allocation of space for health and safety purposes. But, let’s be clear, we’re talking about the possibility of more than just a few tweaks around the edges. There could be some seriously significant shifts here, driven by open, innovative and out-of-the-box thinking as to how office space is occupied – or redeployed entirely. In the last couple of months, we’ve seen that it’s possible for various organisations – even large multinationals like Barclays – to run at something close to usual capacity and output despite their teams being at home. Now that method has been somewhat ‘proved’, and given that COVID-19 will continue to impact all of our lives for some time to come, having teams spread across various locations (whether smaller offices or even their homes) with remote-working capabilities may well become a new normal.

A geographic rebalance

For the purposes of this blog, let’s accept the premise and say that there is going to be a wholesale move by companies away from huge office complexes with thousands of employees in one place, to a setup that is much more dispersed. That would have deep social and cultural implications, fundamentally altering the makeup of our communities – particularly in large cities. Struggles in the retail sector have drastically altered the landscape of those urban centres in recent times anyway; if offices also move out of those areas then the effects could be seismic.

But, it’s by no means all doom and gloom, because where there’s change, there’s opportunity. Here at MRI, our own research has demonstrated a widely held view in the industry that empty retail space could be transitioned to residential – could it be the same case for offices? And what of large office campuses on the outskirts? Were organisations to move away from these locations, could they be turned into facilities for last-mile services and logistics, perhaps? There’s also an impact on the residential sector to consider – because if more people are going to work from home more often it will undoubtedly affect where they want to live and will almost certainly change their priorities in terms of what they want from their homes and the amenities nearby. In smaller pockets these are not completely new trends, but we haven’t yet seen them emerge industry wide. If we take Barclay’s thinking as a barometer, then we could be on that precipice.

Collaboration (and technology!) will be key

Another question – and an important one – what will landlords do? If the way businesses occupy office space changes then those that own, operate and invest in it will need to consider their approach. This is where ‘opportunity’ is the optimum word. Landlords that are flexible, those that are willing to listen to the needs of their tenants and work with them to provide space that meets their needs, will have the best chance of maximising occupancy – and therefore revenue. Those that don’t, won’t. Not a ground-breaking realisation, but one that will definitely be heightened in the changing and challenging environment. Where today’s organisations have an advantage that previous generations didn’t when navigating such deep-seated change is in their use of technology. Digital innovations for space planning, online forms of communication and the power of software to process and interrogate huge swathes of data should, if harnessed correctly, make for better-informed and smarter decision-making than has ever been possible before. To achieve a truly collaborative approach, and to effectively manage the sorts of strategic decisions that both landlords and tenants may choose to make or be forced into, then technology will be a non-negotiable option.

For more insights, opinions and resources related to the COVID-19 pandemic, visit one of MRI’s regional content hubs: North America, EMEA, APAC.

Clients of MRI Software are equipped with powerful tools that may not always get the attention they deserve. We’ve decided to break down the details of some of our most useful tools in the myMRI Client Portal. Make sure to visit the myMRI Client Portal today to experience our newly released, streamlined interface!

The myMRI Client Portal includes features such as:

• Reporting and Dashboards – View your case activity at a glance on the home page with our real-time Support dashboards.
• Our Chatbot Leo – Looking for the answer to a quick setup questions or maybe you have received an error when running a report? You can interact with Leo to search through our existing self-service library of resources or if you cannot find what you are looking for you will may be prompted to open a support case with our team.
• Knowledge Articles – If you have any questions regarding the functions of the software or how to perform a task, there are over 2,500 knowledge articles to help you through your questions. You can sort and filter these articles by product family, generate PDFs, and share with your colleagues.
• MRIFLIX Support Videos – View our library of client support videos designed to help you find the answers to frequently asked questions. The support team at MRI Software analyzes all of the data from our support cases selects the most common support requests. We have 220+ videos available for clients to get the support they need, without having to call their support team. These voice videos are paired with screen captures, making it simple for you to answer your questions and get on with your day.
• Support Cases – Through the portal, clients are able to submit support cases, view the status of cases, and see the history of previous cases. This is also a great place to interact with your support team.
• Product Documentation – Find user manuals, release notes, system requirements, and more.
• Incident Reports (IRs) – The IR section allows users to view IRs submitted by themselves, or by MRI. Users now have the ability to view the status of IRs in real with estimated fix times.
• Product Ideas – Help make our software better by sharing your ideas with our product management team. Users can submit their own enhancement requests or vote on other ideas submitted by the community.

MRI’s client portal aims to provide clients with the support they need to leverage their MRI solutions in a way that best suits their business. If any client has questions, they’re also free to contact the support team for additional assistance.

March 2020 was a month none of us are likely to forget. As the COVID-19 outbreak continued to spread around the world, all of us were confronted with a flood of information on a daily basis. In many cases, these communications focused on travel restrictions, closures, and other precautions that we should take against the virus. When information is communicated efficiently, it has the power to change the behavior of billions of individuals across the world.

At the same time, communication within our smaller, local communities remains extremely important as information changes and evolves daily, if not hourly. The ability to quickly and easily reach large groups of people with a specific message has never been more of a requirement. And, this is certainly the case as we consider commercial real estate and the relationships we have with our tenants.

Commercial tenant communication

Traditionally, communications between landlords and tenants have fallen under the umbrella of ‘planned communications’. Property events, preventive or planned maintenance, billing or policy notices, or work order requests are common examples. Occasionally, more urgency is needed – power outages or water main breaks can have a significant impact and require a rapid response. While each touch point serves a different purpose, it’s clear that information delivered in a timely and transparent manner benefits both the landlord and tenant and helps solidify the ongoing relationship between the two.

So, if improved commercial tenant communication benefits both parties, how can today’s modern property owner or manager build and execute a productive communication program to drive tenant satisfaction? The most effective plans have common elements that can be distilled down to the three Rs: Reliable, Relevant and Rapid.

Reliable – Establishing relationships begins with open, honest and transparent communication that tenants can count on to make decisions about their own operations. These communications should continue through the entire course of the lease, not solely during the sales process or around renewal time. Messages should be delivered consistently across a variety of channels so that important information isn’t missed.

Relevant – Today’s tenants are constantly bombarded with messages – from customers, vendors and their landlords. To break through the noise, landlords should focus on delivering personalized messages that directly impact specific tenants and filter out others for whom the information doesn’t apply. Relevant messages are far less likely to be missed or ignored when not buried in a pile of general or unimportant messaging. You might even consider different channels for different notifications – text, email and voice messages can all play a role in reaching your tenants and extending that personal touch.

Rapid – Empowering commercial property managers with tools at their fingertips removes friction from the communication process. With a variety of channels to choose from, they are able to deliver the right message to the right recipients in a timely manner. This need is emphasized when information is time-sensitive and notifications must be distributed immediately.

Utilize tools to get the word out

As mentioned above, using multiple channels of communication to get the word out is critical, but this can put a great deal of stress on the property management or facilities teams. With a tool such as MRI Tenant Communications, your team can easily record voice messages and distribute them to select groups, while at the same time craft SMS and email messages to ensure delivery. But it isn’t simply the outgoing process that should be efficient – receiving feedback on the messaging is important, too. A productive communications tool should provide reporting features that help the property manager understand how a message was received so that future communications can be improved. Additionally, MRI Tenant Communications enables recipients to answer questions and provide status updates back to your team. In this way, the communication loop is closed and building management and tenants can send and receive important information as effectively as possible.

The fourth “R”: relationships

While the three Rs provide a framework for a communications plan, the ultimate goal is to achieve the fourth R. Establishing reliable, relevant and rapid communications creates an openness and trust that strengthens the relationship between landlord and tenant, opening the door to mutually beneficial business strategies that can last for years to come.

Watch the webinar to learn more about effective communication for commercial property managers.

The COVID-19 pandemic has introduced tremendous uncertainty into the the economy. From determining how essential and non-essential business will operate and take steps to re-open, there isn’t a clear path to navigate. As the impact continues to expand throughout the multifamily and commercial real estate sector, thoughtful and responsible action will be required to support landlords, residents, tenants and clients.

As our MRI Software team looked at market conditions, spoke with clients and evaluated our solutions, we were able to identify some specific ways we could help. The team focused on how to surface relevant information to support decision making, track significant changes in tenant payment agreements, and even enhance communication with tenants as conditions and directions change rapidly.

One of the most significant challenges that both Residential and Commercial property owners face is balancing the occupancy of their spaces with their residents’ and tenants’ abilities to pay. As individual business conditions changed, these owners and managers are often negotiating alternative payment options with those tenants and residents. And, given how variable these agreements can be across a portfolio, they needed a way to track and process these new terms.

Deferred payment agreements

The deferred payment agreement feature in MRI allows the user to select the amount of rent and/or other charges to be paid by the resident or tenant at a future date based on the number of payments and frequency agreed upon between the management company and resident. Users can also choose the relevant deferment charge code to allow for transparent reporting between the accounting suites in the Commercial, Residential and General Ledger solution. Joining forces, team members from our UK and US offices worked together to develop a payment agreement feature that could be localized within the MRI Property Management solution.

New analytics dashboards

Information that is sourced from key metrics like Accounts Receivable volume or tenant retail sales numbers can provide a great deal of insight into the risk faced by an organization and their tenant base. Armed with this data, more informed decisions can be made and accounting, leasing and management teams can react more efficiently. To deliver this visibility, our Analytix team created the Advanced Retail Insights dashboard and the Accounts Receivable Insights dashboard to provide a view into this data. Since conditions vary across markets, the information can roll up to the portfolio level or drilled down to the property level. These dashboards can be implemented quickly and leveraged to support the business.

Effective communications tools

As this crisis evolves, there has been a growing need for communication from properties to residents and tenants. For timely messages regarding new procedures or updates to building or community operations, MRI has developed products and programs to ensure that the right automated communication tools are available during this time. Multifamily properties can quickly send messages to residents using our Callmax Automated Communications software. In addition, commercial property managers can leverage tenant communications tools to share information via text, voice or email.

With the focus of keeping employees and residents safe, we added capabilities for our clients to further define what constitutes an emergency service request and the ability to ask additional questions during the online service request submittal process. Additionally, to help limit the number of requests coming in, maintenance teams can create DIY videos to display in Resident Connect, the resident portal.

The business challenges that have come to light during this pandemic are far-reaching, so we have enlisted the experience of industry experts to offer recommendations and best practices. In our COVID-19 Resource Center, MRI clients can learn more about reforecasting budgets in a time of uncertainty, how to provide virtual tours, and send Callmax bulletin communications.

As we transition through different stages of this crisis, we anticipate that the only constant will be change. The MRI team is committed to enhancing and evolving our products to support the needs of our clients.