How to Strategically Deploy Capital Across Your Real Estate Portfolio

Aerial view of a busy city

In our current economic and business environment, developing a capital plan that is financially viable and aligned with corporate objectives can help reduce risk and ensure long term operating success. However, most firms have limited funds for investment into their buildings and facilities. That means implementing a plan that gets the most “bang for its buck” can be an elusive process. Here we discuss how real estate organizations can be more strategic with their capital deployment strategies.

Capital Planning: An Integrated Perspective

The construction, maintenance and upgrading of fixed assets remains one of the largest components of an organization’s cost base. Buildings and their underlying infrastructure need constant maintenance to operate successfully.

Deciding how these assets are maintained depends on a variety of factors. Organizations face increasing challenges structuring and timing investments around business variables. Emerging factors, such as sustainability and occupant wellness, are adding to the complexity of capital planning processes and compliance. Interest rates, inflation and vendor costs also impact the success of a capital investment plan over time.

Overall, capital planning is no longer about financial impacts alone. It is increasingly about how investments are aligned with an organization’s business drivers, risks and governance responsibilities. This is adding to its importance.

Focus on Data

Organizations typically have a checklist of key items that require funding. Then, they integrate these into an annual portfolio-wide budget. However, this checklist may not be directly tied to building performance or other key business drivers. It may not take the importance of data into account. The focus is often on deploying the money instead of understanding the outcomes of the investment decision.

Making the most of building and facility condition information data is critical in developing a good capital investment strategy. Static spreadsheets and cash-flow models are no longer enough. Instead, real estate professionals need to use software and data analytics. These programs help understand the performance of specific building infrastructure and components.

As mentioned in an earlier article, there are several ways to optimize investments through analytics. Some examples are scenario testing, depreciation forecasting, total cost of ownership (TCO) analysis and benchmarking. Data standardization and centralization are just as important. They help ensure an organization makes the most of current and accurate information.

Don’t Forget the Strategy

Many organizations think of capital planning process as a means to itself. They may not adjust their annual or quarterly budgeting even though business conditions are shifting.

Instead, they need to take a step back and take a goals-based approach to capital planning and align it with larger business objectives. In doing so, they are able to implement a more refined capital deployment strategy that reflects corporate priorities. This is especially important for organizations that operate in fields where business conditions are constantly changing.

The Role of Communications

Communications is key to any successful capital deployment strategy. Teams must be able to align budgetary needs and organizational objectives to ensure they deploy capital plans successfully. While facilities investments are usually managed by internal real estate or corporate strategy teams, these groups must increasingly communicate with a wider stakeholder base. This may include tenants, sustainability teams, risk managers and property management. This ensures all corporate needs are considered in the planning process.

For a more strategic approach to capital planning, consider investing in real estate performance software like 4tell™’s Facililty Condition Assessment Software. Its standardized, centralized database and easy-to-use reporting features can help align your investments with organizational goals.

Photo by adam morse