Leveraging Anaplan for essential real estate asset, portfolio, and fund modeling in a rapidly changing environment
Henri Wajsblat, Anaplan’s Head of Financial Services Solutions, interviewed Anaplan Gold partner and Lionpoint Group Founder Nick Moore about the transformation of the real estate sector, its business and technology issues, and how the Anaplan platform and Lionpoint solutions can help .
Over the past decade, we’ve seen a significant increase in the allocation of private capital into commercial real estate. Most recently, with the explosion of internet commerce, investors and developers have focused on real estate assets supporting supply chain and distribution. How well is this market supported by technology, and what do you see as the challenges for investors and owners in this new business environment?
Real estate has historically been a laggard in the adoption of technology. The model through the early 2000s was a “one size fits all,” with key real estate ERP vendors claiming that clients only needed (their) one solution to address all of their information and reporting needs. This started to change around 2010 as innovators grew frustrated with this model and started creating best of breed solutions to address gaps in the real estate information management ecosystem. We saw the emergence of solutions like VTS (leasing and asset management), Honest Buildings (project management) and Dealpath (deal pipeline management) to address these gaps with open and connected solutions. One key area that remained using spreadsheets was modeling—from lease-level budgeting to asset forecasting, portfolio/sector analysis, and fund modeling through to corporate allocations and enterprise value forecasting. Some legacy solutions have addressed parts of the process for a subset of asset classes, but these have failed to provide the flexibility required by the market.
When Anaplan came to the market, the Lionpoint team immediately saw a huge opportunity to disrupt a painful, fragmented process and bring immense efficiencies to all participants—asset managers, portfolio managers, fund managers, CFOs, group heads of FP&A, and, of course, investors.
In this period of high uncertainty, how would you describe the incremental challenges faced by the real estate sector and what are the key areas where technology can help?
We are certainly in a particularly challenging environment for real estate investors and managers. Most asset classes have been hit hard with the onset of Coronavirus and the shut down of commercial operations globally. Everyone is now scrambling for data. The traditional model of reporting asset performance monthly or quarterly has been turned on its head, with portfolio and fund managers demanding daily updates around pipeline deals collapsing, tenants requesting rent abatements, or walking away from obligations, impacts across supply chains and, of course, assets that are forced to remain open to provide essential services while the vast majority of tenants are closed. Companies that have only invested in back office and accounting solutions are now struggling with a myriad of Excel files, copying and pasting data to try and determine their down-side risks and implement mitigants to these. It is extremely difficult to adequately sensitize portfolios manually and generate accurate impacts on funds, clients, and the business as a whole.
There are four key areas where we are seeing clients turn to technology for immediate support:
A. Asset data aggregation
Typically, investors or portfolio managers are collecting standard financial and operating data from underlying assets on a monthly (or quarterly) basis. A predefined set of data points is collected and aggregated (often manually) from external managers, JV partners, and other sources. Since the outbreak of COVID-19 and the dramatic impact on tenants, supply chains, and assets, there has been a demand for far greater granularity in reporting, in many cases, now on a daily basis. Investors want to understand the impact on lease deals in the pipeline, tenants requesting rent abatements or reductions, tenants going out of business, the reduction in foot traffic at assets, the costs for assets with essential services (supermarkets, pharmacies, medical offices, and the like) to remain open while the vast majority of an asset is in shutdown, and a myriad of other data requests. Historic systems and templates are not set up to handle these changes in data requests and it is often not a simple process of adding fields.
B. Asset sensitivity
Once the data is collected, it needs to be normalized and modeled to determine how much strain an asset can take before it is at risk of breaching covenants and hitting a negative performance threshold. Many investors are doing this in spreadsheets with complex formulas that are being constantly tweaked and optimized—manually.
C. Portfolio/sector/fund sensitivity
The real challenge comes with trying to aggregate the data from individual assets into a portfolio, sector and/or fund model. With so many new data points that are often unique to a specific asset type (e.g., a regional retail mall versus an industrial asset), aggregating this data in a meaningful way is complex and often error-prone. Investors are not only aggregating the data in a bottom-up fashion, but also then applying top-down sensitivity drivers to model out where the breaking point is for a portfolio or fund. As we have seen in the media, many daily priced open-ended funds have suspended trading yet continue to charge fees to investors. This is, in part, because these managers are still actively managing their portfolios, arguably more so now than ever, trying to contain the down-side risks while also modeling the impacts of different scenarios on their portfolios or funds over a medium and longer-term.
D. Returns and performance modeling
Finally, managers and investors are creating multiple sensitivity models to try to ascertain the impacts of COVID-19 on their fund’s performance, their various fees (management, development, transaction, etc.) and, of course, their own carry. At the same time, many private equity real estate firms are sitting on dry powder and are looking for the right buying opportunities as asset values will be impacted in the short-to-medium term, some more dramatically than others.
Lionpoint has helped many real estate owners and investors fill these gaps by leveraging the Anaplan platform, and has posted Real Estate Budget and Forecast and Real Estate Fund and Portfolio Performance models on the Anaplan App Hub. What key business challenges are companies leveraging Anaplan models to solve and what benefits can real estate owners and investors expect in the adoption of the Anaplan platform?
We are seeing our real estate clients fast-track their adoption of Anaplan as a complementary solution to their ERP and lease pipeline management systems. Lionpoint has created a suite of accelerator real estate models that address each of the four points raised above: Asset data aggregation, asset sensitivity, portfolio/sector/fund sensitivity, and returns and performance modeling. Given the connected nature of Anaplan and the models built on the platform, managers and investors can quickly see the impact of changes at an asset level (for example, a tenant requesting a three-month rent abatement) on asset level cashflows and performance, the portfolio or sector that asset belongs to, the fund or investment vehicle that asset is a part of, and the returns to investors as well as the manager themselves.
Anaplan is extremely flexible and nimble, meaning that we have been able to extend the data collection to include specific COVID-19 data requests, add in validation rules, and include these in a range of new sensitivity models. Not only can managers do rapid bottom-up aggregation and analysis, they can amend market leasing assumptions (MLAs) to create a new COVID-19 set of MLAs by asset type, sector, market, or client. We are also seeing clients perform a far greater number of top-down driver-based sensitivity models within Anaplan to test the limits of the downward pressure that a portfolio or fund can handle and to model out a range of options around the impacts of COVID-19 depending on when the social distancing rules begin to be relaxed and how long it will really take for the performance of assets, portfolios, and funds to return to an acceptable and more predictable level.
Finally, we are seeing owners of large office portfolios starting to model a world where companies embrace a more flexible approach to working in the office versus working from home (WFH)—the new normal. It is widely expected that the demand for office space (either permanent or flexible) will change for the long term following COVID-19, and landlords and investors are modeling out what this could mean to their existing portfolios as well as future acquisition framework. The good news is that Anaplan enables all of this modeling with connection to business unit headcount projections, new ways of working, and workplace planning models.
For more information on Lionpoint real estate solutions, join the following North America webinar: June 30th at 9.00am Pacific Time / 12.00pm Eastern Time.