THE INCREASING IMPORTANCE OF PROPERTY AND ASSET MANAGEMENT

Col. Ashutosh Beri, Managing Director - Property and Asset Management, West Asia,
Jones Lang LaSalle Meghraj

The hiatus that the real estate sector in India faces is a result of a combination of macro and
micro factors, including adverse sentiments, liquidity squeeze, initial spikes in lending rates,
selective oversupply in some segments, slackness in demand, and downward recalibrations
in economic performance.

2009 brings with it a time for introspection and course consolidation for most stakeholders in
this industry. This year is also the time for developers, occupiers, and investors in the real
estate sector to realize optimal asset values, rationalize cost outgoings, and ensure that the
net returns are stabilized. Very often, during a phase of consolidation, the focus comes back
to cost rationalization, which entails exploring ways and means of reducing expenses and
enhancing operational efficiencies. Hence, it is quite natural that players in the Indian real
estate sector today are concentrating on processes and procedures that allow realization of
economies when building and managing real estate assets.

Typically, the cost structure of any project can be categorized into two distinct segments. The
first is composed of real estate capital costs; but equally important is the second cost aspect –
comprising working capital and maintenance costs, which is a consistent outflow throughout
the lifecycle of any real estate asset. The optimization of maintenance costs can typically be
achieved by inducing the following threefold measure at different stages of a real estate
project lifecycle:

1) Adoption of efficient planning strategies for achieving the optimal level of future costs and
expenses
2) Optimizing the actual costs incurred for the maintenance of the property
3) Ensuring the long-term viability of the asset and income stream associated with it

This comprehensive approach of optimizing real estate asset performance and its related
operating costs typically comes under the nomenclature of ‘Property and Asset Management’
(PAM). Usually, Property and Asset Management involves a liaison between real estate asset
owners and a third-party management firm operating on the formers’ behalf.

While the definition of Property and Asset Management may vary from country to country, it is
fundamentally a management practice that integrates people, place, processes, and
technology within an organization to ensure functionality of a built environment – large or
small. Apart from undertaking primary activities related to the maintenance of built property
and its conjoined infrastructure and facilities, the domain of Property and Asset Management
also includes services that enhance asset performance by adopting Tenancy and Lease
Management.

The growing complexity and sophistication of real estate assets being delivered in India has
made it imperative for asset owners to not only focus on planning and construction delivery,
but also to ensure that assets are managed holistically so as to optimize expenses and
ensure greater value-add for users and investors of such assets.

Availing of property and asset management brings science to managing property, and
eliminates the negative by-products and losses of random, unplanned management. The
primary benefit is that PAM allows for better expense planning as far as the maintenance of a
property is concerned. The entire life cycle of the property is taken into consideration while
strategizing a PAM plan, so it is maintained efficiently over a longer period. This maximizes
the asset value, since a better-managed property fetches a higher price than one that is not
both in occupier rentals and in outright sale of the asset. Also, professional property
management reduces risk and improves tenant retention. In short, a professionally conceived
and executed property and asset management strategy can help real estate owners reduce
their operating costs and enhance property values — all while maintaining a superior work
environment for tenants.

While property and asset management is, at first sight, of concern only to developers and
occupiers, it is in fact also a vital area for institutional property investors. All funds who have
invested in property have to focus on asset management, since they have to ensure that their
assets are properly developed after investing their capital. If they are already developed, they
have to ensure that they are leased. If they are leased, they have to ensure that they are
properly managed. Asset management is an integral part of a process that starts with
acquisition and investment, goes on to the asset management stage, progresses to
divestment and then circles back to fund raising.