Cross-Functional, but Not Aligned
A recent cross-functional conversation among commercial real estate professionals surfaced an interesting conundrum; acquisition teams should routinely collaborate with asset management groups, but don’t. Why not?
Imagine how much more richly informed decision-making could result from acquisition teams well-acquainted with the long-term capital plans for existing assets along with those they underwrite for consideration? Conversely, consider the possibilities for collaboration between asset management and acquisition teams considering potential asset classes, regions, etc., as they compare with assets currently held within the portfolio.
Acquisition teams analyze and plan strategically with a goal of taking possession of new assets at competitive cost. Their primary focus is future-facing, meaning not what is currently held, but what is available to be acquired.
Asset managers cultivate the value of existing assets. Their success is measured by their ability to maximize property values throughout asset holding periods, including disposition.
Each group excels based on their knowledge and experience but their purviews are limited. Future-facing acquisition teams conduct exhaustive due diligence on potential additions to ensure that documents and filings are clear, true, and complete. What they are less likely to do, if at all, is compare them, not just to market comps, but to the existing portfolio. Asset managers do not routinely weigh in on holdings until they become actively engaged in their management. They often have insight based on their experiences with similar, existing assets that might prove valuable to acquisition teams.
That’s the Way it’s Always Been Done
Among the most entrenched industries, commercial real estate operations have proceeded according to long-established tradition. According to "One Mission" author Chris Fussell, organizational silos grouped specialized teams with similar functions together for the purpose of organizational efficiency.
Silos and Hierarchy
While silos and hierarchies contributed to organizational stability and knowledge retention, insular, linear approaches do not offer the most effective solutions to modern problems. That is not to say that we have not been successful; but that potentially, moving away from closed, hierarchical structures towards aligned and interconnected teams will encourage greater flexibility and innovation.
Envision teams aligned by the capital plan. Imagine their enhanced capacity, given their unique perspectives and core competencies. How might they ensure both that the acquisition of future and management of current assets are executed in consideration with the capital plan, considering upon their distinct viewpoints?
Acquisitions teams would benefit from accessing historical data from past capital plans to more accurately underwrite and therefore more competitively acquire an asset. Their recommendations would be informed by what the organization has learned previously, as a predictor of future success.
Asset managers often assume responsibility for buildings acquired with inaccurate underwriting plans in place. This is often the case when underwriting data is provided by third-parties or relies upon standard models which may not accurately reflect the region, asset classes, or most up-to-date data. If asset managers inherited new assets with the most accurate plans in place, the process to make assets operational would likely be reduced, making reforecasting less complicated from the outset, allowing asset managers to focus in creating long-term value.
Reforecasting across the organization would be based upon a broader perspective than either team might contribute individually.
System integration teaches us that without a centralized repository for information sharing, knowledge critical to an enterprise’s most effective operation may be isolated and not communicated broadly.
Interconnected teams sharing historical and performance data in tandem with underwriting and projections expand everyone’s data set. More than just data, teams should leverage human resources, meaning the perspectives and experiences of team members. Consider aligning teams and individuals connected to the same outcomes, impacted by the same events, but experiencing them from entirely different perspectives.
The benefits of cross-functional collaboration are evident far beyond the world of commercial real estate. Studies suggest that collaboration through insight and information sharing reduces the time it takes to get things accomplished, improves the ability of teams to solve complex problems, and generates more creative solutions. Organizational learning is enhanced, because with information routinely shared and centrally available, there are fewer barriers to access and getting questions answered.
Michael Beckerman of CRETech recently wrote about technology’s takeover of commercial real estate. As local and global markets and opportunities continue to change more rapidly and dramatically, let's lean on purpose-built PropTech to enable greater innovation, adaptability, and collaboration.
Failing to collaborate risks not just existing but future opportunities.