The inside track into property software

Insider knowledge has long been the holy grail for property speculators. But as real estate markets continue to falter amid uncertainty, businesses are increasingly turning to software solutions to deliver information and transparency within existing portfolios.

“I think we are sending a very important message to the market that we offer solutions to survive this crisis,” says Richard Gerritsen, regional sales manager for Yardi Systems, in Europe.

The state of the market was put in context by a survey released at the close of 2008 showing the UK’s construction sector fell for the ninth month running in November. The CIPS/Markit purchasing managers’ index for the sector decreased to 31.8 in November, from 35.1 in October, after peaking at 64.8 in August 2007. Yardi is capitalising on downturn attracting business from the UK, Germany and the Netherlands.

While huge capital was made out of real estate transactions over the last decade, today’s stagnation means almost no revenue is being generated. “Investors are being forced to make money out of their current portfolios,” says Mr Gerritsen. “You do that by having the exact information on what your portfolio consists of through analysis and base management decisions on that.”

Common sense advice
Yardi has dominant market shares in the various market’s it is active in, Yardi not only offers just software solutions, but what it describes as common sense advice to investors on how to make capital out of existing investments. According to Mr Gerritsen the key is portfolio analysis using a robust information system. Operational data might include knowing property vacancy rates, whether residential and retail properties are consistent throughout the whole portfolio, how investments in the east of the country compare with those in the west?

“You really want to query your data base to identify what problems might exist,” says Mr Gerritsen. “Vacancy may not be the problem, it could be one particular region, or even an external property manager or agent. They may perform better in the south than the north. A good system will be able to provide you with this information.” Headquartered in Santa Barbara, Yardi systems has offices throughout North America, as well as in Europe, Asia, and Australia. Knowledge of rapidly changing markets, particularly in the US, helps identify regional challenges. 

And it is the unique problems facing Europe, and in particular UK and Germany, that Mr Gerritsen says investment managers must confront. The issue he says is less about bad investments and more about the cultural differences in the decision making processes in the USA and Europe over the last 20 years.

Cigar boxes
“The true distinction I’ve seen is in the maturity levels,” he explains. “The American investment managers manage more on the financial data side. “The European companies are bricks and mortar people. They are still making base evaluations on the back side of cigar boxes. They are much more mature in the US. I see it all the time. I often talk to US investors and when they come overseas they are surprised at how things are managed over here.

“It is not uncommon in a pan European portfolio, with a number of external managing agents, for everyone to be sending Excel documents at the end of each month to an investment manager who consolidates those sheets manually between the 16, 17 or 18 reports. He then presents this data to management teams, which means by the time it reaches them it is almost three weeks into the new month. It’s already old information.”

The secret to creating operational efficiencies and increased profits says Mr Gerritsen is fast information on which managers can make forecasts and decisions about investments. Yardi’s software philosophy involves one simple, integrated system that can be used by numerous stake holders, internal investment managers, fund managers, operating managers or external agents. These teams can then make use of very detailed data, identifying for when leases will expire or when to talk to a tenant.

“At the highest level, you don’t care whether the commercial property manager made the call to the tenant,” Mr Gerritsen explains. “The only thing that matters is the aggregated risk of the square footage on a leased area that is about to expire. This can be provided by a simple investment structure.”  

Flexibility
Traditionally, the real estate industry involves an investment structure that must be very flexible. Current market conditions have heightened the importance of active asset management, it is here that software adds greater value. No transactions mean fewer opportunities. It is a mighty challenge for software designers to implement a flexible enough system to cope with a portfolio that grows by 50 percent.

Two years ago, a number of Yardi’s newest clients in Europe were American hedge fund managers. “They were buying up anything that looked like a building because they had billions of dollars to spend,” says Mr Gerritsen. “Those companies are very quiet at the moment. Our new clients today have been around for many decades and they are safeguarding their business process with our software.

“This is a very positive development for us short term. But long term these changes will make the real estate market more mature, and that will benefit us too.” Mr Gerritsen has worked for Yardi for three years. When he first started with the company, most clients were making enormous returns on their investments and were using our Yardi solution to keep up with the fast-track investment changes. Those times have now gone and I’m not sure they will ever be back. I believe the market focus has changed forever.

Asset management
If solid asset management, rather than aggressive buying and selling, is truly the future of the property market, web based software systems are the delivery tool. Anyone who can surf the internet can navigate the Yardi system. Complexity exists, but only where one person wants total access. The reality is that the Polish commercial manager has no interest in accounts interface, while an executive studying KPIs has no need to read staff journal entries. The configuration of the data defines the ease of use.

Yardi software already serves more than 20,000 businesses, corporations, and government agencies, representing more than 7bn sq ft of commercial space and 8m residential units globally. What has been the most important factor in its own growth over the last 26 years?

“We developed from a property management solution to an investment management solution,” says Mr Gerritsen. “And we are still expanding the effectiveness and transparency, not applicable to just investment managers and properties, but to stakeholders too.” Working directly with light bulb manufacturers and plumbers is easier than compiling and faxing out purchase orders through several internal processes. Specific parts of the system can be given over to the local plumber who receives assignments automatically, creating efficiency in the system.

Efficiency and transparency mean a reduction of costs and increased profitibility. Yardi aims to attain growth and profitability, specifically in Europe by becoming the leading provider. Some software vendors could be perceived as outsiders, however Yardi is not as the solution offered and the organisation behind it are directly real estate focused.

”Most of our staff have real estate or accounting background and only a small amount work in software,” he says. “This is a true real estate system. We live and breathe property.” The Holy Grail – a genuine insider.