A few weeks ago, Honest Buildings officially launched version 2.0 of our Portfolio Capital Planning Platform, meaning it’s now out of beta and available both to new and existing customers. You can read more about the specific platform and it’s benefits here.
I’m taking a step back to talk about why I am so excited about our latest innovation.
This is Important Because...
Owners deserve tech platforms built for them.
The primary job of any real estate owner is to create value and maximize returns for their investors by efficiently deploying capital across their portfolio through the acquisition and maintenance of physical assets. Owners' track records are built from their history of creating value across their assets; those assets are constantly undergoing projects and change, so much change that real estate is one of the largest market opportunities in the world. Right now there is $10 trillion in global construction spend annually (to put in perspective this is compared to $6 trillion of gold mined ever), projected by McKinsey to grow rapidly over the next 10-20 years.
Data-Driven, Purpose-Built for Owners. What Does That Mean?
Shockingly, no technology exists that is built specifically for owners to intelligently manage projects and plan capital to create value for assets across entire portfolios.
For building projects and construction, we believe that technology shouldn’t be created solely for project management. We believe technology should address value-creation across the lifecycle of assets, from acquisition to disposition, and at every stage in-between. We believe that owners deserve data-driven, purpose-built resources generating data which translates into insights that will drive smart decisions and create lasting value.
That Brings us to our Newest Expansion
The Portfolio Capital Planning Platform is a cloud-based, real-time forecasting and analysis product for intelligent capital planning, not just project by project, but across entire assets and portfolios.
It’s the next logical step, at least as we see it. By centralizing the planning component, making it dynamic rather than static, we elevate the experience of capital planning beyond anything anyone has ever experienced. We’ve created a living, responsive digital platform intended by design to help owners meet their obligations.
How Does Capital Planning Happen Today?
Painfully. Manually. Rick Wilson, CBRE’s Director of Strategic Accounts, describes today’s capital planning process,
it’s often versions of spreadsheets that get passed around in email.
The capital planning process is disconnected from project planning, done in static environments, meaning that neither the planning nor the updates occur in real-time. The results include a giant game of phone tag to get information, a huge drag on the team’s time, and stale, limited insights and sluggish returns for investors. Even when plans are updated regularly, e.g., on a quarterly basis, as soon as updates are complete, the data is already out-of-date when they are sent to investors.
Digital solutions built from the ground up have irrevocably changed the landscape, and the most effective, value-rich and forward-facing capital plans leveraged by the best owners and operator will not continue being built in spreadsheets for much longer.
The Anatomy of Today’s Capital Plan
Capital plans can be limited, or as broad-ranging as 7-10 years, depending upon the organization and the value, size, or scope of the portfolio. Done well, they represent a considerable competitive advantage, by reducing waste and improving profitability. Sadly, they are not currently, consistently done in a way that sets organizations up for success. Here’ the current process:
Pre-plan assessment to uncover which jobs should be undertaken:
- Value enhancing capital projects that are selected based on the owner’s unique view on positioning the asset
- Required capital projects, including bringing the property into compliance with the Life Safety Code and other legal requirements
- Leasing capital projects, which includes all of the work needed to move tenants into new spaces as existing leases expire
- Projects that are somewhere between necessary and value enhancing that act as a bulwark against value loss by keeping pace with market trends, like adding amenities that comparable competitive projects offer for similar rents
The Typical Capital Planning Process
Once pre-planning is complete, owners and their teams decide which projects get budgeted this year (or pushed to later years), who should do the work and at what cost. In a perfect world, this plan is compared by line item to the underwriting capital plan used during the acquisition, and most commonly used to benchmark results during reforecasting.
Although the underwriting capital plan sets out an initial vision for the asset strategy, reassessing the plan on a regular basis accounts for numerous shifts. Reforecasting ties revised numbers back to original projections from the underwriting plan. While this provides a point of reference, it’s only as good as the data was at that moment in time.
But worse, it’s a painful process. A giant game of telephone across the company to understand what’s been projected, what’s been completed, and what should be completed in the future all compared to the initial underwriting.
Capital budgeting is the process for drilling down into more detail on near-term projects. Usually reserved for projects slated to start within the upcoming year, it entails projecting cash flows by month. Monthly projected capital spends are usually also incorporated into a larger budgeting model, which includes non-capital expenses and revenue.
For even more detail about capital planning, read our guide.
There is a Considerable Performance Gap
Envisioning a world where capital planning is collaborative, dynamic, and responsive, Honest Buildings recently sponsored a roundtable conversation with industry leaders around operational excellence. We invited industry decision makers, those responsible for building plans along with those who manage them to share their frustrations, needs, and recommendations for addressing the performance gap between where the process exists today and where it could be.
We all know capital plans as the tool intended to guarantee that commercial real estate owners are focusing on cash flow, optimizing investor returns, and have sufficient visibility to enhance the value of their portfolios. Too often, the people involved at various stages of the process are not equally engaged in the entire lifecycle of the plans to which they are accountable. We can do better.
Why Plan for the Long-Term?
Long-term capital planning provides the opportunity to maximize returns, but too often the long-term plan lives in a silo separate and entirely disconnected from the actual progress of projects making up that plan.
With this new platform, short-term project plans and long-term capital plans connect dynamically, in a way no one has previously experienced.
This provides a scalable, structured method of analyzing capital projects, creating a body of business intelligence that grows as it is used.
Imagine building a unique data warehouse of all projects across your portfolio. Over time, that warehouse matures into a strategic capital planning resource that never previously existed. There is less guesswork and more empirical data, ultimately becoming a validated, single source of truth for decision-making. There is no need to imagine it. We did it, and it was built exclusively for owners.
When Honest Buildings approached us to partner in creating and testing their new Portfolio Capital Planning Platform, we saw an immediate advantage in embracing this new product. We believe that moving the capital planning process away from spreadsheets and into a system that tracks the deployment of capital in real time will help us create efficiencies and make better decisions.
~Sara Shank, Managing Director, Head of Portfolio Management, Beacon Capital Partners