Real estate professionals succeed based on their ability to profitably acquire, develop, operate and sell real estate. As real estate companies grow, one of the biggest challenges is growing their back-office accounting and administrative functions to keep up with the increasingly challenging requirements of lenders and sophisticated investors. Those real estate companies should also consider the advantages of outsourcing accounting and fund administration functions to real estate-focused client accounting services (CAS) providers.
Over the years, CAS has been discounted by real estate investors since the primary providers were often smaller practitioners with limited experience in complex real estate environments. Today, many specialized groups have arisen that focus on working with real estate developers and asset managers, public and private real estate investment trusts, and private equity real estate funds. Whether they are looking for help in streamlining accounting processes, launching new investment vehicles with more complicated reporting requirements or outgrowing their in-house accounting resources, these investors should consider outsourcing accounting and fund administration functions to real estate-focused CAS providers.
Real estate companies often hire CAS providers as their accounting function for individual investments across their whole portfolio or for performing certain tasks. These tasks often include cash disbursements, cash receipts or full monthly financial reporting, but a full solution may include lease administration, treasury management and construction draw management services.
CAS providers can provide a more comprehensive approach — evaluating processes for operational efficiency and proper controls and then implementing recommendations using new applications and modules while integrating with technology resources to build automation. CAS providers can even perform outsourced systems administration services, such as Yardi administration, including setting up users, establishing a helpdesk and executing other ad hoc projects.
Sophisticated CAS providers even do work for public real estate companies. CAS providers can perform outsourced SEC reporting services, including the preparation of Form 10-Qs and 10-Ks and current reporting on Form 8-K. These services extend to accounting support for transactions, such as IPOs, and spinoffs and to building the accounting function to migrate from a shared services or transition services model.
For public companies, experienced CAS providers can provide a packaged service offering for accounting and tax, along with an accounting function that operates within a SOX compliant control framework. This gives your financial results credibility with investors and documentation that makes due diligence a breeze for transactions, ranging from IPOs to strategic acquisition by institutional investors. These CAS providers can implement automated controls to mitigate risk, ensure duties that could result in fraud are properly segregated and ensure that financial reporting risks are reduced to the minimum levels.
The biggest concern we hear from real estate companies is that outsourcing to a provider is too expensive. Compared to hiring and managing an in-house accounting department, outsourcing is more cost-effective since you are no longer responsible for supporting and maintaining that department, including the burden of finding high-quality talent in the current competitive accounting market. Reputable CAS firms consistently train their staff so they are well versed on the latest accounting rules and regulations, and understand the importance of oversight and risk mitigation when it comes to establishing trust with their clients.
Some real estate professionals don’t want to lose control of the employees they need to execute daily tasks. In these scenarios, key gatekeepers are critical for a successful outsourcing arrangement. Real estate companies should confirm they have administrative support for non-accounting tasks and a client-side reviewer responsible for ensuring financial information prepared by the CAS provider is accurate. Effective CAS providers should have a consistent primary contact in place who can run point on all accounting needs with the support of a team that values responsiveness and quality communication.
CAS providers should set up protocols to collaborate with property managers and asset managers, including designing processes that integrate procedures performed by those stakeholders.
Certain CAS providers can “lift out” a real estate company’s entire accounting function, hiring the employees and selling back accounting services, which allows real estate companies to retain the valuable institutional knowledge while upskilling those employees to take on more complex tasks.
CAS providers can help you evaluate the accounting needs for your portfolio and determine a detailed scope of work that can be used to set fixed pricing, a necessary for predictable operating results.
CAS providers often meet with leaders of asset management and property management to establish a communication plan and from there build a detailed migration plan to ensure success taking over these critical tasks.
Baker Tilly’s real estate CAS team includes knowledgeable accounting professionals with deep experience working for real estate developers and asset managers, public and private real estate investment trusts, and private equity real estate funds for all types of real estate.
Through the CAS team’s partnership with Baker Tilly Digital, clients also have access to a technology-enabled platform that integrates general ledger data with other data sources to provide process automation and dashboards to support decision making tailored to your needs.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.