What to Look For In An Asset Manager

For investors investing directly in TICs, DSTs and 1031 Exchanges
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REIT Wrecks
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What to Look For In An Asset Manager

Post by REIT Wrecks » Mon Jun 14, 2010 8:43 am

Today, TIC investors need to throw out the recipe book when it comes to picking an asset manager. Before the great commercial real estate recession, most TIC investors simply hired the asset manager appointed by the deal's sponsor. More adventurous groups sought their own asset manager, but they looked primarily for managers with expertise in the asset type, knowledge of the geographical market and the appropriate back office capabilities (the ability to manage lease expirations/renewals, review CAM reimbursements, oversee major capital improvement projects, process distributions, etc). In a perfect world, the asset manager would also have technical knowledge sufficient to provide effective assistance to the group's accounting and legal specialists.

While the above general requirements are still important, the current market conditions are such that it is imperative that investors also have an independent asset manager with deep expertise in commercial real estate finance. Even in good times, many lenders viewed TIC lending as an exceptionally risky endeavor, and today many of these views have been vindicated. Unfortunately, most lenders still view the TIC ownership structure as dysfunctional at best. This means that even performing TIC deals will have trouble getting refinanced in the current market, and the ability of an asset manager to work proactively and constructively with lenders is paramount.

Before making any decisions to restructure existing commercial real estate debt or extend new credit, lenders are also much more careful to scrutinize non-financial factors such as the debtor’s track record, integrity, character, and ability to accurately budget, forecast and plan for capital improvements. In many cases, a good asset manager can bring bring cohesion and credibility to this process, which will greatly improve the chances of rolling over existing debt.

In the current market, TIC investors need an asset manager that can help them make critical management, valuation, disposition, and financing decisions, as well as deliver a more unified, cohesive ownership structure to lenders. While an asset manager may not be able to prevent the need to restructure certain transactions, an asset manager that can bring a cleaner TIC structure to lenders will have much better success in obtaining a new loan and preserving investor equity. This is true for both distressed assets and performing assets.

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