Asset Management is really a form of property management but coming at it from a slightly different angle. Where property management focuses on the nuts and bolts of effectively running properties day to day, asset management focuses on adding value to the property as a form of investment.
Not that normal property management doesn’t have this end-goal of increased values and reduced costs in mind anyway, but asset management goes a step further to make it the absolute goal and thinks more bigger-picture into issues that can extract that extra value within a property interest.
This therefore tends to hinge on market values and what the property ownership or tenancy value is, how things can be changed to increase the value, and how these extra initiatives and plans can unravel in order to see it increase longer term. Reducing costs and expenditure are a consequence of this, but not necessarily the main focus, as the goal is to unlock the hidden gems of value in the property interest even if there is an increased initial cost for the sake of a greater long-term return.
In terms of terminology used, you sometime see this referred to as real estate asset management, or property portfolio asset management, and more general investment asset management. It’s all the same focus, although make sure you’re talking about property as the ‘asset’ in question as opposed to other forms of non-property assets.
Property asset management also tends to focus more on commercial property because of the greater opportunities and values that involved, but certainly still applicable for residential interests, particularly larger multi-let and mixed-use schemes.
In terms then of a final definition of property asset management, it is “the process of maximising the value of a property interest through proactive and cost-effective measures”.
Asset Management Versus Property Management
Understanding how these two relate to each other is best understood in an example. Let’s take, say, a row of shops with flats above them, your typical local parade maybe with a newsagent and café or takeaway.
Let’s say you own the freehold of one of these with a convenience store below, and two flats above it, with the whole unit let out under one commercial lease to ABC Newsagents for another 3 years.
In the property management world you have the basics to look after – making sure the landlord or tenant are carrying out maintenance and compliance works according to the lease, arranging correct insurance cover and any service charges, and making sure rent is satisfactorily paid up.
You can also start thinking longer-term and looking at, say, early negotiations to renew the lease in the next few years, and how the newsagent is correctly using the separate flats upstairs themselves or through authorised sublets.
Asset Management then looks at things longer-term and value-wise, and what the value of the freehold interest could be both short and long-term. So if the current tenant renews their lease in a few years time the property may be worth ‘x’ amount as opposed to ‘y’ amount if they vacated and the landlord was left with re-leting the whole property.
But what would happen if you agreed new terms now and ‘re-geared’ the current lease for a longer-term, and what are the priorities of the tenant? Maybe they would commit to a longer lease term if the landlord can offer some initial rent-free period to ease current cash flow.
And what would happen if they just took a lease on the ground floor shop and the landlord accepted the flats back in order to separately let out or even sell as separate long lease interests?
Other opportunities and angles open up now you’re focusing on the longer-term goal of increased market rates within the parameters of the landlords’ and tenants’ priorities and a little thinking outside the box.
A Property Asset Management Strategy & Plan
It’s therefore important to have a clear strategy over time to accomplish these greater-return goals for the property, not just bumble along. Even first clearly defining that end goal is essential, and whether it needs to be expressed in a greater value on paper or increased rental return in the shorter term.
Also, what price is willing to be paid to accomplishes this, for example initial expenditure for changes to the property.
You then need a plan to reach this including a realistic time-frame and how things should occour in the correct order. This is where the pure property management expertise can really help, something that asset managers often miss in the frenzy of the deal and the figures.
So in the above example, a landlord may want to take the flats back and deal with them separately for a greater return, but there can be all kinds of expensive issues to clarify such as utility supply and splitting, and then separate access and fire compliance which could easily turn things unprofitable.
Asset Management Companies & Firms
External advice can be a great help at this stage, as they have the expertise in both property and market matters, plus a fresh non-connected perspective on your property to help come up with some real gems and angles.
And for such advice that actually works, it’s worth paying the price for it as the old saying goes, you tend to get what you pay for (check out the post here on how fees get structured for this advice).
But make sure you receive the right advice, not standard off-the-shelf but expertise that is applied to your own situation and property asset. Also, make sure it’s with the right advisor, which may be a different one to your usual property manager even though they may offer bolt-on asset management services.
The Role of Property Asset Managers
Similar to property managers, you do have asset manager jobs where they primarily look at these longer-term angles on properties. In reality though they can be the same role or person, and ideally any good asset manager should at least be working closely with a property manager or understand the nuts and bolt of the property and the people involved in order to reflect in wider investment advice.
The skill set for an asset manager is slightly different though, so an asset manager in addition to grounded property management expertise needs to have more agency and professional experience and skill set, and often contacts within the property market.