My previous blog post focused on the private equity real estate industry indicated that increased competition in the space emphasized an adaptable fundraising platform. Deloitte’s 2017 Commercial Real Estate Outlook indicates that the competition in this market will continue to intensify, and specifically notes that Cloud and mobile technologies are this year’s key enablers for growth. The report states that firms should, “Assess suitable applications, identify key functions and processes, improve integration, and address security issues.”
This brief report, however, does not state how real estate investment firms should go about making their technology evaluations and selecting the proper system. Based on Dynamo Software’s conversations with hundreds of private equity real estate firms, the choice is typically between “brand-name” providers (e.g. Salesforce, Microsoft Dynamics, ACT!) and premium platforms that are tailored to the industry. This post is intended to provide real estate investment managers with actionable guidelines for selecting a long-term asset management software system.
Align Decisions with the Size of Your Firm
We recently held a webinar that presented findings on when alternative investment groups typically move on from generic providers. These conclusions were derived from all 2016 sales conversations with firms that had a brand-name CRM platform as their incumbent software. The median assets under management (AUM) of firms seeking new solutions last year was $450 million USD, which was consistent with internal research in past years. Once firms attain $450m in assets under management, a more robust software suite and intensive service experience is typically needed in order to maximize operational efficiency. Spin-out firms have noted having an industry-specific software solution in place at the start has decreased the disruption in operations during software replacement.
Assess the Complexity of Your Acquisition and Disposition Management
Real estate investment firms with AUM exceeding $450 million USD have accrued tremendous amounts of information regarding past and present acquisition 
and disposition opportunities. This data needs to be properly cataloged in order to be effectively leveraged during future considerations. Feedback from firms using generics in our research noted insufficient control of the deal pipeline, an inability to track referral sources and lack of context for deals that were previously turned down. Navigability played a part in losing pipeline control as firms cited common processes that should have required only one or two mouse clicks were instead accomplished in five or six. Integration with Microsoft Office was also reported as lacking, which necessitated additional steps to transfer records from email clients to the investment management software platform.
Configurable, industry-specific platforms can personalize the organization, navigation process, and presentation of acquisition and disposition data to align with your firm’s internal operational processes, as well as streamline information retrieval and facilitate informed investment decision-making.
Determine the Necessity of an Investor Portal
Investor Portals are valuable tools for building equity with both prospective and existing investors through transparency and accessibility, and have seen rapid adoption by private equity real estate firms. Investors are able to access an Investor Portal online, and instantly receive information regarding transactions, balances, investment performance, and communications from the firm. Investors are also able to directly update their contact information and notification preferences from within the Portal, reducing tedious ad hoc requests such as K1 distribution permission.
Brand name CRM platforms do not offer native integration with a Portal, while industry-specific providers typically offer their own proprietary platform. If your real estate investment firm exceeds 200 investors or is experiencing an influx of institutional investors, a Portal is a sound investment for establishing a direct, fast conduit for addressing their needs based on our proprietary research.
Assess Your True Technology Budget
Beyond name recognition, CRM software such as Salesforce and MS Dynamics is widely adopted because of the lower cost of entry compared to management platforms designed for specific industries. However, adoption of these platforms for a complex industry such as alternative investment brings larger, ongoing long-terms costs. Brand-name platforms are designed to be a one-size-fits-all solution, built to serve simplistic relationship management functions. Any deeper feature set has to be customized by a third party and made compatible with the core platform’s coding. These customizations require engaging consultants who are familiar with the core platform to create them. Problems may occur with customizations when new product releases or updates break the logic of the modifications, inhibiting productivity and sapping yearly technology budget to consultants.
Industry-specific providers have a one-time implementation fee, and provide continuous access to client service and support specialists for the life of the contract at no additional cost. While the initial investment may be higher, money that would otherwise be used for consultants can be devoted to other technology initiatives.
Identify Your Level of Fintech Knowledge
A consequence of the success and omnipresence of providers such as Salesforce and MS Dynamics is that they cannot treat all of their customers equally from a service standpoint. These companies target Fortune 100 businesses, and on that scale even growing real estate investment firms with significant AUM do not represent a service priority for them. The most common issue that we have heard from prospects moving away from generic CRMs is that they are considered a lowly tiered client by customer service team, with many generic application users feeling like they do not exist at all. Comments from prospects included that their service manager changed frequently, and that often their service contact was a “ghost.” This lack of service attention is not conducive to the operations of firms that are expanding their assets and headcount.
If your firm has a technology expert, or does not yet have the momentum to include a technology strategy, this lack of service support can be a moot point. However, industry-specific technology vendors employ staff with extensive expertise with alternative investment, and have implementation specialists who can design a project plan that institutionalizes the firm’s goals for the platform, and takes an active role in suggesting best practices to ensure that your software product deployment is scalable to your industry, and your unique operational workflow.
Audit Your Cyber-Security
Cyber-security is already dominating headlines in 2017, but few have a true understanding of the safeguards needed to ensure proprietary data is protected. When speaking to a vendor, query them on how they address increasingly security threats, such as phishing, spear phishing, Botnet, and DoS attacks, and internally discuss if the vendor’s proposed solution is sufficient for your firm.