The Evolution of Asset Management
During the early 1990s, in response to the predicted crisis on the Swedish real estate market, many builders stopped building new properties and began to manage properties instead. At the same time, many real estate owners chose to outsource their property management with the aims of reducing the size of their own organisations and making large cost savings. Almost twenty years later, the real estate market looks very different – but what about property management?
Tailor-made services
Cost saving is still a driver for outsourcing today, but the reasons for outsourcing are now more diverse, as are the types of player practising it. Tom Hansson, CEO and Tendering Consultant at Tom Hansson AB, says that one major driver is the ability to access a broader and more specialised expertise than the general organisation can maintain in-house. Tendering Consultant Lennart Andersson at Fasticon agrees – and adds the preference of property owners to focus on their core business as another reason. Andersson also believes that as property management consultants become increasingly professional and specialised, the greater availability of tailor-made solutions enhances owners’ willingness to outsource. In turn, these more professional and tailor-made services open up possibilities for more refined fee and incentive structures and clever business models that generate evident added value for the property owner. A trend noticed by both consultants and property owners is a combination of tailor-made services and attractive business models, with a fee structure based on shared risk and incentives.
Strategic decisions are taken in-house
Jan Björk, Head of Real Estate Asset Management Sweden at Alecta, agrees with these views. He also believes that being able to use property management specialists increases Alecta’s competitiveness on the market. More flexible and incentive-driven fee structures also enable owners to direct the focus of their management, in Alecta’s case primarily towards optimised revenues and full control of the cash flow.
Alecta has chosen to delegate a lot of management responsibility to its consultants while keeping strategic and investment decisions within its own organisation. This choice corresponds with the forecasts made by both Andersson and Hansson: strategic services will be purchased more selectively, and this market is likely to decrease because property owners will to a larger extent manage these processes themselves. In contrast the demand for general property management services will increase. The trend is most evident among international and institutional property owners as well as municipalities and owners of industrial premises.
One of the new property owners on the market is a combination of an institutional investor and a traditional property owner. Första AP-fonden – AP1 – has recently bought a large part of Acta’s residential portfolio and has chosen to manage the portfolio with its own personnel in the subsidiary company Willhem AB. The CEO of Willhem AB, Mikael Granath, lists the reasons for this as being better control, better tenant relations, better quality management and higher profitability – exactly the same reasons given by consultants and owners above as to why others choose to do the opposite.
The goals remain the same
Although owners choose different solutions to reach an optimal form of management, all of them agree on the primary objectives of the management. The most important seem to be optimised revenues and the competence of the managers chosen. It is noteworthy that the ‘green’ (environmental) aspects of management come out as least important.
A property owner looking at outsourcing property management twenty years ago would probably be surprised at the increased level of professionalism noticeable today in the tendering process, the performance of managers, the services available and the fee structure. What remain much the same are the property owners’ reasons for choosing their organisational structure. While the goals of property management are unchanged, it is the means of achieving them that have evolved.
Anna Smith
Head of Sales, Newsec Asset Management