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Given the cost of developing a property in a built environment, it is natural to assume that property owners would exhaust all means to maximise returns.
Surprisingly, that is far from reality, with many owners simply relying on the market to generate returns. This is often the way commercial property in the UAE is handled, but owners can do more than just leave their assets to the vagaries of the market.
By adopting active asset management, owners can work a real estate asset to generate investment returns that outpace the average market rate.
''Active asset management means critically analysing the income and expenditure of a property or portfolio to better understand how improved investment performance can be achieved, and then executing a plan to deliver those enhanced returns,'' explains Graham Howat, Head of Property and Asset Management - Middle East and North Africa at JLL.
According to Howat, active asset management is not practiced as widely in the UAE as it is in more mature real estate markets. This means there are many real estate assets in the market that could be performing better, if only they received a bit more attention.
''Many owners in the UAE adopt a passive approach to managing their assets, simply leasing the property, collecting income and paying operating expenditure,'' says Howat. ''They rely more on the market to generate returns, rather than on strategic active management.''
This is fine when the market is performing well, but leaves assets vulnerable when the market underperforms. Active asset management can also involve selective expenditure of capital to improve the value of the asset.
''[This is] not simply spending money to improve the look of the asset, but to generate enhanced income directly or indirectly,'' says Howat. ''Quite often capital is spent on buildings with no financial benefit.''
Making a real estate investment profitable means looking at the details, measuring performance and tracking change, whether up or down. A good example of this practice are the best managed malls in the UAE, says Howat.
''These are professionally managed by leasing, marketing and management specialists who understand the dynamics of the retail sector, what creates footfall in malls and what retailers require to sell their products,'' he says. ''For example, getting the tenant mix right is good asset management. Simply leasing the space to any tenants is not.
''A small number of specialist real estate investment managers adopt a similar approach to commercial property, but they are the exception.''
Tenant management is important in maintaining asset occupancy and is essential in active asset management.
''We are acutely aware that a happy tenant is a tenant who will renew and who will stay with the company for the long term,'' says Zainab Mohammed, CEO of Property Management, Marketing and Corporate Communications at wasl Asset Management Group. ''To this end wasl audits its field providers to ensure that the service they give consistently reaches or exceeds its exacting standards.''
Mohammed says active asset management means employing a proactive approach in dealing with customer requests, providing a high standard of services within a specified period and striving to beat service benchmarks and time frames. The ultimate aim is to ensure asset occupancy.
The benefits, says Mohammed, are clear. ''It enables property owners to get the most out of their investment by ensuring a high level of occupancy, with demand resulting from having a good market reputation,'' she says. ''Having a reputable brand name helps maintain retention rates as well as creates leads. A well managed building will be home to happy tenants who appreciate the higher level of services and professional approach from providers.
''Happy tenants means fewer complaints and fewer issues for the landlord.''
From measuring customer satisfaction levels and benchmark success, to tracking the huge quantities of information detailing a particular asset, there are a lot of data points to actively manage.
There are international guidelines outlining how to keep track of all the information required in a standardized way. ISO 55000, adopted in January, is a well-recognised international standard developed to do just that.
''The standard consolidates areas of good practice, which have been fragmentally applied throughout the UAE as part of the facilities and property management agenda for the past ten years or so,'' says Barry Clarke, General Manager for Qatar and Saudi Arabia at Macro, a facilities management firm. ''Stimulated by the need for investment, asset management and optimisation came to the fore as part of standard business investment, due diligence and corporate governance requirements.
''It was then further stimulated by the involvement in estate management by the introduction of the strata law and the need for owners to plan for asset replacement as part of their service charge commitment.''
This, says Clarke, has led to asset management as it is practiced today - involving not only the commercial optimisation of yield, but also the operational identification, management and optimisation of individual building systems, plant, equipment and components.
''It's a simple process of maintaining and looking after building components so they function efficiently and last as designed - so the building is well-operated and attractive to occupy, increasing occupancy levels and, therefore, yield,'' says Clarke.
Aside from increasing returns, such a detailed process also helps generate a great deal of current and reliable information.
''From an operational aspect, the owner has update knowledge on the performance, cost and replacement programme of assets and, therefore, the performance of the service delivery regime.''
Crucially, this information can become a great marketing tool, providing the ability to value the property at any time in its operational life.
''If this information is available, robust and validated, then the need for a condition survey on valuation or sale will be minimised,'' says Clarke.
Despite the benefits, there are challenges before active asset management becomes widely accepted in the region.
Experts tend to agree that real estate owners in the UAE and the wider region do not yet fully understand or appreciate what active asset management is. Typical owners often see real estate as a source of immediate returns, for which little professional management is required.
They, therefore, overlook a more long-term approach to creating and enhancing the value of the property.
Balancing the quality of services against costs is important and this means a careful appraisal of a provider's performance is necessary. It is also essential that the owner understands the benefits and, therefore, accepts the costs of good asset management.
Achieving this, says Stephen Barker, CEO of Home-safe Technical Services, is a matter of education.
''People are cost-driven rather than quality-driven,'' says Barker. ''As they are emerging from a fraught financial climate, considerations are short term and bottom line. There's an economic factor that people tend to consider: cost-effective options and not shortcuts. It's an education challenge that is still being faced by the industry.''
Barker notes the gradual emergence of owners' associations operating joint owned property can, in principle, further the improvement of asset management, but those associations are usually populated by people who have little idea about building maintenance.
This could make the task of educating property owners tougher. However, what could shift the balance in favour of active asset management would be the arrival of institutional investors.
''If there was more transparency in indexes of values and security of where sales come from, we may see more institutional property investors here,'' says Barker. ''They will bring with them international benchmark standards for how property is maintained and managed as an asset.
''In the absence of a strong framework of accountability throughout the whole chain, I don't think we'll see those institutional investors. So we wont see a huge number of clients taking up the active asset management mantel and doing it right, because the predominant driver is cost.''
Even without institutional investors, individual owners can still benefit from active asset management. If there are enough practitioners, there is also hope the practice could become more widespread. Similar to sustainability-related practices, active asset management can be driven by demand from international companies entering the market.
''Professionally managed property generally attracts and retains tenants better than those managed purely as functional buildings,'' says Howat. ''International corporates increasingly demand evidence of good property asset management before they will commit to signing leases and will dismiss poorly managed property.
''An owner needs to regard the property as an investment needing close attention. A potential purchaser can pay a premium for an asset that has a strategic business plan, which can include future activities or initiatives to build value.''
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Source: Stuart Matthews, Special to Property Weekly