In December 2019, Baker Tilly leaders Roger Ledbetter, Thane Hutcheson and Brent Maier were joined by Houston real estate industry specialists Sonya Rosenbach, CFO with Allied Orion Group, and Rene Joubert, principal with i3, for a panel discussion on real estate industry trends and opportunities. Bob Charlet, publisher of the Houston Business Journal served as moderator for the discussion. The group discussed topics ranging from recent trends in the real estate market to best practices for Opportunity Zones to overlooked funding sources.
Some real estate owners hold many assets and may not have expertise in-house to assess and monitor their portfolio’s performance. In the following exchange, the group provides insights on the pros and cons of relying on in-house performance measures as compared to outsourcing these to a third party.
Brent: A major benefit of performing this function in-house is the cost avoidance by not having to compensate an outside advisor, the costs are fixed and you can perform the function internally. We have many clients with this expertise who are sophisticated investors and operators who perform these functions themselves.
There are other situations where companies may be spread thin due to a growing business, lack of expertise in a certain area, regulatory changes or changes in staffing. In those cases, outsourcing may make sense. For example, we’ve worked with a private equity firm that wants to get into a particular asset class, but doesn’t have the needed expertise. In a case like that, we are co-advising with the private equity firm where we have the industry experience and knowledge to assist with their decision making.
The downside of internal performance measurement is the real or perceived lack of expertise in an area. In these cases, companies may have some of their staff who, instead of doing their “day job,” get distracted by working on other things outside their expertise.
The advantage to hiring an advisor is that, with the right advisor, they've had experience in other situations they can draw on and relationships they can leverage to help get to a solution or an answer to a complex situation. The downside, of course, is the cost, but the benefit hopefully outweighs the cost.
Rene: An advisory firm is a fully integrated company, which helps them mitigate their own cycle risk for other lines of business income. However, our biggest focus is “know your asset.” From our standpoint, controlling your assets is critical to knowing how you're going to do on a long-term basis.
Sonya: Our team has extensive expertise in-house, but we also know when to call in other experts to help evaluate performance. We regularly interact with various third-party experts, multi-family professional organizations, and our peers, making sure that we're connected to what's going on in the industry. We collaborate often, but that doesn't always mean you hire a consultant – you can also collaborate without incurring extra costs.
Brent: It goes back to our earlier conversation about collaborating and connecting to people. I think my job is pretty simple; it's just connecting dots. I think we're all in a similar program; just connecting dots.
Roger: This is a great time in the market with cap rate compression prices. Companies have to reevaluate whether to use advisors to review your portfolio and non-core assets or do this in-house. This may be a great time to divest.