Real Estate is an integral part of our lives; it provides a place to live, to work, for leisure and increasingly a large part of our investment portfolios. However, real estate is a complex business that requires multiple experts at various points in the lifecycle of an asset. In this business, consultants are critical cogs; assisting in conceptualizing projects, helping raise or deploy finances, marketing assets, managing the construction and operations of the property. For those unacquainted with the workings of this sector, their perceptions are made based on limited interactions they have with the sales consultants.
Over the past decade, the industry has evolved and become more competitive. There is now a need to employ experts who perform very specialized roles at critical junctures. The construction management team for example, is led by the project manager who in turn is supported by experts who specialize in drafting contracts, quantity and cost surveyors, health and safety officers; and engineers who advise on structure, plumbing, electrical, HVAC and even aspects like acoustics to name a few.
In the real estate consulting business clients are broadly divided into three buckets namely the producers, occupiers and investors. This is because most large consulting firms have traditionally operated in the B2B space. However there is now a growing realization that there is a large untapped B2C market that can be accessed over the internet and mobile. This segment seeks professional advice that unfortunately is not available today to the desired standard.
Each of the three client types has their own set of challenges and opportunities. The key challenge to the producer or the developer is that there is a significant time lag between conceptualization of a project to its delivery. In the interim there is major investment made in land and constructing the property. During this period there is risk of change in regulations, delay in approvals, consumer preferences, volatility in financing rates and cost of raw materials. It is therefore critical for the developer to have his or her development strategy spot on with respect to the target market, the development mix, marketing and sales plan, achieve financial closure and mobilize a team capable of executing this strategy. Not having the right strategy could lead to serious cash flow issues. Also of importance for the developer is to be nimble and thus adapt to any of the uncertainties inherent in this sector. Courtesy, information that is available online, the industry is fast getting segmented between those developers that deliver what they promise to the consumer and those that are unable to do so. The market while rewarding the former is very unforgiving to even minor errors or transgressions.
In the second bucket lie the occupier clients. More so than ever before due to the current economic environment, today the head of real estate for a major occupier like a corporate or retail chain is under tremendous strain to ensure his organization’s occupancy cost is kept to the minimum. Most corporate real estate (CRE) team’s KRA is to reduce their real estate costs as benchmarked to a percentage below market or many times to their key competitors. The CRE head at the same time also needs to ensure that there are no disruptions to the business or any loss to productivity, and also that the firm’s real estate grows to accommodate the company’s expansion plans. Consultants work in collaboration with the CRE heads in continuously looking for ways to reduce the occupancy cost, which include transportation, common area charges, utility payments, IT and telecom charges; and not just rentals. This is done primarily by effective lease administration, ensuring that the spaces are efficiently utilized, that utility costs are optimized and future growth is accommodated much in advance to mitigate the impact of rising rentals.
The third client type, the investors follow the paradigm that capital flows to geographies and beneficiaries with the best risk reward profile. Institutional investors thus formulate their strategy based on market opportunities and their fund’s mandate. Apart from taking calls on financing structures, they also have to decide on asset type, geography and potential partners that they should invest in. During the pre-investment period consultants play an important role in ratifying their investment strategies, assisting in sourcing opportunities and undertake due diligence of the commercials, property and the partner proposed. In the post investment period, consultants undertake periodic appraisals of the investment for book keeping and monitoring purpose. Investors even look to consultants to manage the operations of their assets or assist in leasing and even mandate them to sell the property as their exit from the invested property.
The three buckets are typical property consulting industry nomenclatures. There are other client types that seek the consultant’s advice, say for a merger and acquisition, for arbitration and legal disputes and for the purpose of insuring the property.
Wikipedia quotes Peter Block’s definition of a consultant as an expert “who has influence over an individual, group or organization, but who has no direct authority to implement changes.” This lack of authority to directly impact is true of the real estate consultant as well, but real estate due to its all pervasive linkage with business results has far reaching consequences. A true advisor should thus make his knowledge their client’s property and help them accelerate their business successes.
Authored by Amit Oberoi | National Director | Valuation & Advisory Services and Research |Colliers International
Article published in Consultants Review, December 2015 issue