No, not that one. Used broadly across construction, real estate, matters of property and law, our F-Word derives from the Latin fidere, which means “to trust.” We’re referencing Fiduciary, the other F-Word. Strictly defined, it describes one held to and undertaking the duties of good faith and trust.
What Owners Do
Commercial real estate owners create value and maximize investor returns. They accomplish these goals through effective deployment of capital across their portfolios throughout the asset lifecycle; acquisition, lease, and management through capital projects, tenant improvements, or maintenance of a building.
A significant consideration as owners seek to achieve their goals, what is a fiduciary? What do fiduciary relationships look like? Finally, how does fiduciary responsibility change as technology and access to data evolves?
Acting as a Fiduciary
A fiduciary relationship exists when one party formally places trust in another to act responsibly on their behalf, rather than in their own best interests. In the world of commercial real estate, this happens at several points and between several parties.
What Does the F-Word Mean?
OLDCAR is a real estate acronym defining the terms of a fiduciary trust. It stands for Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable Care. The ethical duty to act on another’s behalf is central to the relationship. Separate from legal obligations, the relationship holds at its core principled and value-driven behaviors.
Let’s look at each of the terms.
Obedience refers to the obligation to abide by the terms of the relationships, within the bounds of the law. You have agreed, as a fiduciary, to obey the wishes of your client, assuming they are legal and ethical.
Loyalty requires you to act in their best interests.
Disclosure is the requirement to share with your client material knowledge, as well as information that could affect their decision-making. A responsible fiduciary discloses information as known.
Confidentiality requires a fiduciary to retain and protect proprietary information. This obligation survives the term of the relationship.
Accounting is the obligation to properly track and report on transactions and dispositions.
Reasonable Care refers to the expectation that a fiduciary will act responsibly and knowledgeably.
What Does this Mean for Owners?
Owner success can be measured in two ways:
- by their capacity to return the greatest value for investments placed under their control,
- minimizing their personal exposure by failing to achieve sufficient gains while assuming the largest risk.
Owners work both in their own interest, as well as in the interests of those to whom they are accountable.
Owners demonstrating the best track records for providing safe investments with the strongest performance attract the most capital. Better able to track committed costs as they occur, these owners are better equipped to make risk assessments and adjustments as necessary. With purpose-built technology available to meet their unique needs, failing to leverage available resources could be considered a dereliction of their fiduciary responsibility.
How do owners’ team members address their fiduciary responsibilities?
Acquisition teams build initial value by taking possession of assets at the most competitive cost. Before owners make a purchase, acquisition managers undertake financial and value analysis, assess market competitiveness, participate in strategic planning to achieve owner objectives at the onset of the asset’s lifecycle.
Their fiduciary obligation relates to:
- establishing and communicating fair expectations
- Forecasting with diligence against the owners' business plan
- making recommendations aligned with longer-term capital plans for both individual assets as well as the segments of the portfolio under their control.
With access to data powered by technology, they underwrite more accurately, enhancing their capacity to bid and then dispose of assets more intelligently, and more competitively.
Asset managers cultivate the value of assets within the owners’ portfolio by focusing on maximizing a property's value over the course of its holding period for investment purposes. Asset Managers may variously be charged to oversee people, locations, or to manage service relationships. They are more likely to engage with tenants and vendors, undertake their fiduciary responsibilities in a more direct capacity.
Those responsibilities cover market research and data analysis, aligning revenue, forecasting, and reporting in support of the owners' operating budget and capital plan.
Asset Managers create value through long-term operations of an asset by:
- Creating an accurate capital plan
- Ensuring projects are executed in accordance with the capital plan, and
- Reforecasting plans based on cash flows over a given time period.
They are trusted to safeguard owners’ investments by assessing and limiting liability, ensuring that costs don't run over budgets, AND that money could be allocated elsewhere isn't left on the table through underspend.
The Technical Advantage
Technology is no longer merely an advantage within modern commercial real estate. Digital resources delivering just-in-time information ensures that owners meet their fiduciary obligations. By providing greater visibility into costs and timelines, parties subject to the fiduciary relationship access comprehensive, accurate data, relying upon it for prudent stewardship of assets, keeping costs manageable, powering better decisions.
Technology adoption created a new baseline for organizational transparency along with the ability to access, review, and analyze data, make timely adjustments, and decisions. It enhances opportunities to maximize tenant revenue by ensuring projects are completed on schedule and on budget, that rents remain competitive and, continue to increase through value-added components and amenities.
Finally, over the longer term, technology optimizes capital planning, well-informed by data, for future development, with a plan to build property and portfolio values over time.
So, the Next Time Someone Says the F-Word,
Remember, teams are more likely to succeed when everyone knows what’s expected, and knowledge is power. So, the next time you hear that F-word, you’ll be in the know.