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Entry posted September 17, 2010 by Thomas_Clark
We live in real time; business managers are expected to focus on business analytics and to make informed decisions. Real-time business intelligence is directly proportionate to how fast a business can react to information. In other words, A&E due diligence clients, decreases their risks by decreasing the time for getting information into the hands of decision-makers.” Real-time BI has become crucial to survive in today’s economy.
New challenges must be addressed to handle the requirements and technology hurdles to meet each client’s information demands. As client's become more technically advanced we can expect future due diligence contracts to include more specific data transfer protocols. The question for the A&E firms becomes how adaptable is their internal data infrastructure and their data delivery applications?
The major goal for information architects is to reduce the time taken for corrective action or for a new initiative. Client IT centers acquiring newly developed BI tools are working to control data latency, streamline analysis and action latency. Companies understand that ROI will also depend heavily on the ability of an organization to modify its business practices to take advantage of improved responsiveness in their data systems.
BI applications included active decision support, query and reporting, online analytical processing, statistical analysis, forecasting and data mining are the future trends, all features an A&E firm can use internally to extend add services. One of the major hurdles BI systems confront is data integration. With quickly changing concerns in the area of sustainability, organizations without connective data can find themselves at a disadvantage; changing tax credits, compliance regulations, reporting guidelines, insurance coverage’s, etc, all expose clients to increase risk.
A Intelligent data integration component that can capture and quickly transfer information to be merged with business events from operational systems and integrate into a low-latency store would create new opportunities. This component design can provide A&E firms internal real-time, data-on-demand processing to improve data accuracy and transparency. The benifit of a real-time decision-making component is the support for real-time performance management; guiding maintenance, capital budgets, tranactions and resource planning with improved tools for predictive analysis.
In the future: Business Intelligence will have a broad, deep and lasting impact on how we do business. Ultimately, it will change the way we conduct due diligence and how business decisions are made. Our industry will be expected to respond quickly to deliver superior customer service by providing a real-time information and BI will play an essential driving role in tomorrow’s faster and more competitive business environment.
- Entry posted August 13, 2010 by Thomas_Clark
During the second decade in the 21st century companies will come to realize one fundamental truth: A COMPANY CANNOT GROW LARGER THAN ITS INFRASTRUCTURE. IT Infrastructure has become a major barrier to growth and company stability. Due Diligence Firms by their very nature of business are growing there Data stores, having to manage a larger volume of information, creating new challenges to future growth. After all, consulting firms are information companies. It is proffessional information the client pays for.
There are three typical ideas on how to gain advantage using technology:
- Keep your competitor from obtaining it
- Develop or adopt each new technology faster than your rivals do
- Implement it better or smarter than the opposition.
The first of these avenues -keeping competitors from obtaining technology- is a fool's errand in most cases. Even proprietary technology developed for a firm's own deliverables has become too expensive to maintain and reverse engineering is always a factor. A strategy based on trying to keep the competition from obtaining technology over the long term works only in industries with large financial barriers to entry or for firms with unusually strong patent positions.
The second avenue is to develop or adopt new technology faster than the competition. This can work for agile companies willing to commit resources to speculative ideas, or large firms that dominate by virtue of their sheer financial and technological power. However, these firms are vulnerable to later market entrants, who learn from earlier mistakes while avoiding heavy R&D investments.
The third approach is to surpass competitors by implementing technology better in supporting your own business strategy in close support of operations. Because the size and complexities of internet business operations the importance of infrastructure development is fundamental to a business success. "How" is more important than the “What." The ability of a firm to use implementation as a competitive weapon hinges upon its appreciation of the basic characteristics of new technologies and of their strategic implications.
The Rise of the internet, cloud computing has lead to the advancement of Integrated Systems. Strategic planners traditionally study the structure of the markets in great detail, but today in a stagnate economy how you perform become an increasingly more important factor. It is technology infrastructure which can become the major advantage over competition.
Consider the implementation of technology as an opportunity to restructure the business and to redefine the industry through integration. Planners need to consider their IT infrastructure design with its own inherent strategic characteristics as an important strategic asset, not just an expense. With a cloud computing infrastructure, coupled with emerging business technologies and stratigic planning, firms can create opportunities to gain a competitive advantage. Specifically, planners should:
- Gain a deep and detailed knowledge of their firm's technology. Without a comprehensive picture of both process and product technology, how can they understand the forces working within their firm? Bring in a consultant to perform a IT infrastructure due diligence review. Find out where you are today before you spend more on IT Sprawl.
- Think in terms of the strategic characteristics of your firm's core services. How do we structure technologies strategies, minimizing costs, control quality and integrate business functions which is adaptable to change? Architect your IT future.
Remember that technology for its own sake is useless, at best, and dangerous, at worst. Don't buy technology, buy strategies. For more information see Cloud Computing and the Future of Due Diligence Services
- Entry posted December 12, 2009 by Thomas_Clark
It’s coming, is your client prepared? During the next 30 years The United States Geological Survey calculates a significant risk of earthquake ground accelerations that exceed the levels of the 1906 San Francisco earthquake which far exceed the levels of the Loma Prieta and Northridge earthquakes. It is estimated millions of square feet of large, privately owned structures likely will perform poorly during the earthquake and might be seriously impaired for extensive periods after the seismic event. Should these predictions become reality, a host of potential legal claims, many for personal injury and death, could pose serious financial risk for property owners.
This hypothetical legal exposure may be reduced if the owners of these structures take remedial action before the earthquake. The first thing that property owners should do is engage a competent seismic specialist to analyze the facility and predict its performance in two or more possible seismic events. This “seismic assessment” will address the likelihood that seismic demand will exceed the capacity of the structure in hypothetical seismic scenarios. The seismic assessment should address the likelihood that the peak ground acceleration and corresponding “interstory drift” of the structure to determine the buildings capacity to handle future seismic loads or to lose its capacity to handle simple gravity loads.
If the seismic assessment warns of unacceptable performance during a short time horizon (say a 50 percent chance of collapse within 10 years), the owner should take steps to manage the extraordinary legal risk associated with the use and operation of the vulnerable facility. Whether the private owner of the structure is deemed negligent should turn on certain findings of fact:
- Whether a condition on the property created an unreasonable risk of harm
- Whether the owner knew or, through the exercise of reasonable care, should have known about it
- Whether the owner failed to repair the condition to protect against harm from the condition
To reduce exposure a Corrective Action Plan should be developed to provide guidance to the owner on short term interim use and long term mitigation of seismic risk is prudent under the circumstances. Reliance on legitimate and well-reasoned expert advice may reduce the potential exposure to death and personal injury claims, because the owner may be able to prove that its reliance on the seismic specialist and its management of the structure was reasonable under the circumstances. As a practical matter, these solutions will often require careful coordination with existing leasehold tenants, including providing temporary alternate space during periods of retrofit construction.
Bottom line, a seismic engineering firm should provide guidance to the owner on how long interim use is prudent under the circumstances. The reliance on legitimate and well-reasoned advice of this type can also reduce the potential exposure by being proactive.
- Entry posted October 14, 2009 by Thomas_Clark
Another week went by, we prepared valuation models for three distressed real estate portfolios we bid on and were rejected by the sellers for being to low. In today’s market we need to submit ten proposals just to buy one. The Buy/Sell difference for distressed notes and REO’s are all over the place, compounded by poor information and overstated valuations of “portfolio value” by sellers who are often politically reluctant to sign their names on the loss to move the assets off the company’s books.
When an investment becomes distressed, the first option is to sell: But at what price? The value of the asset is what someone will pay after they understand the risks. There are serious detailed technical matters to address in today’s market the buyer must understand before moving to commitment.
As a buyer it is difficult to value property of any kind when prices are declining. An economist will tell you a real estate assets value is driven by supply and demand, interest rates, the economy, unemployment, immigration, etc. and even more economic fundamentals. That maybe true, but with falling or stagnant prices in most markets across industries and across the economic spectrum, the difficulty in valuation makes most assets today distressed.
Accordingly the seller may not want to face the fact that their assets could be worth far less than what was paid for them. Yet the question is will the asset be worth more in a few months from today? Most will agree not.
Our question we are confronted with is, how can you value an asset especially when we may hold the asset over a 12 month period? With the multi-levels of risk and uncertainty it is difficult to logically understand why so many distressed assets are being held off of the market. The incentive to sell is just not as strong as you would think given the facts.
As a buyer the key to success in today’s market is patience as we continue doing our due diligence and prepare our next letter of intent. Until the market resolves the current Buy/Sell difference deal flow will remain a trickle. - Entry posted September 17, 2009 by Thomas_Clark
Recessions have the powerful effect of accelerating shifts in technology to gain efficiency. It is important to note the Federal Government and financial institutions are speeding up the adoption of standards for transferring electronic due diligence data in the quest to eliminate paper reporting and reduce error prone data duplication. Driven by a business crisis, business leaders and software architects are meeting in committees, adopting electronic protocols, for structuring the transfer of real estate/facility information. In the near future A&E Consulting Firms will be challenged to adopt transformational IT strategies to become integrate information providers.
A&E Consulting Firms have had little incentive, or tools, to streamline their work process. From field surveys to reporting, many of the observation, data capture, analysis, and report generation techniques and process have changed little over the past 20 years. The Federal government adoption of GASB 34 and a following executive order requiring all Facility Condition Reports to be delivered in a “data base format” have prompted creating IT architectural standards, such as Core Architecture Data Model (CADM), a government favored model designed to capture and transfer data following a standardized IT structure.
New technology and software innovation are bringing a major disruptive software evolution to all industries, offering a genuine advantage of a new set of open source technologies to interconnect massive data transfers in live time, interrelating business practices across Client/Vendor domains. New applications coupled with cloud computing can deliver powerful new business capabilities that can make substantial gains in productivity to warrant the cost and risk required for transformational change. Being on the forefront of Enterprise 3.0 application development in the real estate / asset management industry, I have identified four key Enterprise 3.0 application components necessary to work interactively in the design of a successful due diligence Enterprise architecture model:- Content Publisher Application: Integrated data acquisition tools designed for the capture and conversion of a large volume of property data in a, “Content Publisher Application”, to develop structured data at the point of origin, making it immediately available for review by team members, and allow for information delivery across platforms, including RSS. By developing structured information a company creates added value while decreasing acquisition costs.
- Centralized Data Store: Replacing document management with content management and interconnecting with other information stores allows for a "Google experience" where data is stored and discoverable based on secured permissions, allowing for self service data delivery as a service to clients which can be billed (SaaS), increasing revenues while decreasing costs of internal discovery, which are often grossly under estimated in the A&E industry.
- Portfolio Project Management: Is where a group of current or proposed projects interact with management, business intelligence, and resources collaborate in real time to service the client. The fundamental objective of the PPM process is to determine the optimal mix and sequencing of proposed projects to best achieve the organization's overall goals expressed in terms of hard economic measures while concurrently managing expected timelines, expenses and personnel schedules and the inter-dependencies with other projects in the portfolio. At one firm I worked with there was a 40% increase in efficiency by implementing a PPM!
- Enterprise communication: In a Enterprise 3.0 design communication is “social” and ubiquitous. At any business core are person-to-person relationships, Enterprise 3.0 systems are designed to bridge all the channels of collaboration between people, either inside the organization or beyond its walls; videoconferencing, text messaging, email, VOIP phone services, web conferencing, allowing for employees to build the kinds of dynamic relationships around the natural interaction at work that individuals do already in social-networking sites.
Software innovation is disruptive and Enterprise 3.0 is no different bringing both promise and risk. It is a major investment at a cost today for creating benefits in the future. The challenge of success is not in the technology, but in the internal ability to intelligently adopt and execute a long term IT reorganization plan backed with proper resources and the commitment of management to see it through. My advice in the end: select the enterprise software architect that knows your business and the technology, not the promises of a consultant. Remember: An enterprise system is only as good as the DESIGN. - Entry posted August 24, 2009 by Thomas_Clark
Looking back at the 1970’s the America entered a recession with some similarities we see today. We were at war; we had a spike in energy prices, a period of high unemployment resulting from the declining importance of manufacturing. A growing Japanese economy filled the manufacturing void with products, while evening news reported plant closures. The economy sputtered Americans were feeling the golden age was over.
In 2008 the American people feel China will soon dominate the future economy and our golden age is over once again. High oil prices, war, wasteful consumption, and a world in peril has uprooted the world economy. Today in board rooms, Washington, in kitchens and broadcast media across the national attention is refocusing on “economic change”.
For 200 years “CHANGE” has been the American economic engine. While most world economic systems support existing interests we have always been in search for the “next big thing”. During past economic downturns large companies routinely becomes focused on survival which creates space necessary for a major change in our economic system to take place. The important lesson of the 70s was our nation’s adaptability to the sharp loss of manufacturing which eventually gave rise to the powerful knowledge-based economy that became the cornerstone in America’s economic revival for over 30 years.
The 70’s recession ended an era of very large monopolistic like companies; companies which dominated industries like IBM, Pan Am, AT&T etc. During most of the 20th century the economics of scale lead to prosperity, but in the 70’s the now familiar names like; Steve Jobs, Bill Gates, Larry Ellison and their small ventured backed startups faced down the giants and transformed our nation’s economy. More significantly it was a time small companies trumped the advantages size and ventured backed startups lead to an explosion of successful startups and the IPO.
After the dot com bubble burst, we reverted back to 20th century economic thought; that large companies where our best investment for growth in the future economy. During this period the small startups lost there allure they once had. Then last September it all came toppling down, inflated by debt at levels never before imagined, Lehman Brother’s’ overnight went bankrupt. The next day Bears and Stern, General Motors, AIG, etc defined a new class of super large companies known to the public as “to big to fail” (ouch).
We now see in this recession the downside of size. Large companies require longer decision time and have many more levels of regulations and compliance issues to manage. Big companies today are harder to run on cash flow alone, they require more debt and have little success in providing meaningful growth in innovation or employment. To produce meaningful results large companies must place bigger bets in a competitive, web connected, diversified marketplace, substantially increasing risk.
Harvard professor Juan Enriquez made a commented recently that, “Venture backed investment receives.02% of our national investment while being responsible for about 17.8% of our economic output.” His comments appear to support the notion that the ‘speed of change, trumps the advantages of size’. Today small 21st companies have the advantage from nimbleness to risk-taking, while cloud computing is turning our workforce into small globalized teams, loosely joined in collective projects working on; renewable energy, robotics, nano technology, informics and bioscience, etc, which may already be engineering solutions for the next generations economy.
Twenty months into the recession the economy is still struggling yet there are recent signs the recession is moderating as the financial industries are beginning to lend and the government stimulus moves into the pipeline. The freefall appears to be over, but today for the first time the best people are moving from the large firms to small firms and independent contractors. The framework of success is changing, with little more than laptop and friends tens of thousands of small companies are forming and reforming, CHANGE is already hard at work. - Entry posted July 21, 2009 by Thomas_Clark
The economic downturn is pushing the commercial real estate markets into a difficult period in this deepening recession. Business bankruptcy are growing, a steady decline in commercial property yields make it difficult for many real estate groups to meet current debt-servicing commitments, creating a major problem for economic recovery.
Recently Bernanke told the House Financial Services Committee that the commercial real estate borrowers are having difficulty refinancing their loans. In an effort to shore up the market and the banks balance sheets, Bernanke is urging banks to help creditworthy borrowers refinance, while the central bank is trying to jumpstart the securitization market by accepting new and legacy commercial mortgage-backed bonds as collateral in its Term Asset-Backed Securities Loan Facility, or TALF.
The banks get to hide their there troubled loans in a maneuver being called in financial circles "extend and pretend". But do we risk repeating what happened in Japan’s economy which became paralyzed as banks failed to deal with their troubled real estate loans? It is stunning after Timothy Geitner referred to the Japanese “lost decade” as what we would not do, that the U.S. banks are not cleaning up their books and are hoping real estate values rebound quickly.
Most commercial property loans are structured as balloon notes. Borrowers pay only interest for the first five or 10 years until the loans mature, and then the entire amount must be paid back. The banks' willingness to extend loan maturities are hoping rental rates and building values return to levels seen during the peak of the real-estate market in 2007. But what happens to the economy if it doesn’t?
On paper this plan looks like a plus; the bank extends’ the note to the borrower who pays a fee or agrees to pay a higher interest rate, or both, which allows the bank to grab fees and avoids having to foreclose or write down the loans as an impaired asset. They also can keep the loans on their books as if nothing were amiss.
The banks post quarterly results that are misleading, which now has become a different problem because the loans have greater risk than they are disclosing and can pretend things are better than they are. That is what did happen in Japan during the 1990s. After their debt-fed real estate bubble burst, Japan slid into the "lost decade", a time of economic and financial malaise.
Despite all the tough talk out of Washington and Wall Street the U.S. seems to be on course to repeat what happened in Japan, granting extensions to commercial real-estate investors, so they don't default. The hidden loans cause banks and especially regional banks to restrict their lending to business to build new facilities, do renovations, or make capital investment which can grow the economy. What's worrisome is the lack of transparency in the over all system so we are not able to properly evaluate our banking system and make intelligent adjustments.
So we are left to wonder; what happens in a few years from now if the loans are still under water? We can only hope Bernanke and Geitner have the skills to maneuver this economic ship through torturous economic waters, to sound economic stability. - Entry posted June 5, 2009 by Thomas_Clark
In a time of economic uncertainty the importance of quality and relevancy of the information increases as it contributes to the business of investment. We acknowledge that the only certainty is that events, markets, and conditions will change in unexpected ways. Without advanced information infrastructure real estate investment managers simple cannot make these and other critical decisions if they don’t have the information they need. The sea of data that’s involved in managing real estate portfolios must be able to be assessed and analyzed both for performance and results.
In our current market real estate is under enormous economic stress. Investment officers require clear and immediate visibility of the key indicators to successfully navigate their real estate assets through the turbulent times. Ideally information should be viewed by asset class, by individual asset, by region, by sales channel, by what ever slice of business anylytics is needed at any given time to understand the multi-variable reasons for performance evaluation and to reflect upon a portfolios strategic objectives.
During the next few years successful real estate fund managers must improve their ability to project the future. With advances in business software real time information transforms portfolio management from a snap shot in time into a live time dynamic operational investment tool. New business architecture is needed to improve decision making from; what opportunities to bid on, what price to pay, what product blend would be optimum given market conditions and forecast, what is the current status of all of the products in the portfolio, financial stress management all require superior knowledge to asset in making the best decisions.
Investments in fully integrated SOA tools can provide the collaborative work ecology integrating functions through a common, collaborative, data structure. By overlaying a Portfolio Project Management enterprise application over all of the key operations, investment managers can perform the multi-variable tests for testing hypotheses on complex multi-variable systems, designed to track the status and performance against established key indicators to monitor and rebalance the operations, the key to a competitive advantage into the future.
The essence of fund management is to measure the ability to prosecuting the many real estate management functions efficiently and measure the direct results based on the portfolio mangers criteria. The investment dash board today can view process as dynamic and can be the advantage in a time of uncertainty.
- Entry posted May 30, 2009 by Thomas_Clark
There are signs the commercial REO market is taking shape at the FDIC which is assisting the Treasury Department set up and run the Troubled Asset Relief Program funds to help private investors buy as much as $1 trillion in mortgage-backed securities and other holdings
Real estate investment companies are positioning themselves to take advantage of TARP funds to purchasing performing and sub-performing commercial real estate (CRE) note pools to take advantage of the coming commercial REO’s. Treasury Secretary Timothy Geithner announced on Wednesday that the much anticipated toxic asset purchase program, Public-Private Investment Program (PPIP), will be running in six weeks, but details are still incomplete.
There seems to be a lot of private capital on the sidelines awaiting the Public-Private Investment Program since it was announced months ago, but investors have become skeptical about whether the government will be able to work out the kinks by July. A lack of staff, pricing and institutional knowledge appears to slow down the actual implementation of the program.
Banks’ reluctance to participate as part of Treasury’s PPIP potential buyers and sellers has also held up the program over the prospect that lawmakers might change the rules. Last month congress approved an amendment that would impose conflict-of-interest rules on managers of PPIP funds to ensure securities purchases are “arms-length” transactions. Sheila Bair, head of the FDIC said, “The Treasury will need to issue regulations, to clarify these issues before we will have comfort by market participants.”
Yet unanswered questions remain as to whether banks will feel compelled to sell distressed assets in the PPIP program. Or will the terms the government plans to give holders of distressed debt offer a cushion, giving them the option to hold and work out these assets, rather than try and sell them at distressed prices. The Banks and investors are jockeying for position, while the elephant in the room remains; the wide discrepancy on price between buyers and sellers.
Meanwhile many investors and service companies are using this time to put plans into place in preparation for the program's launch in July. Make no mistake about it; this $1 trillion program will have an impact. The PPIP program calls for investors to partner with Uncle Sam to buy up troubled loans and securities stands an excellent chance of helping to value toxic assets and begin to move commercial REO’s to market.
- Entry posted May 12, 2009 by Thomas_Clark
Years ago I had a design/build company I operated in Arizona. Starting out I attacked every client issue with the ‘can do spirit’ which drove me into starting a business in the first place. Clients being clients asked for anything and everything and my stock answer was always, “we can do it”. Over time I came to realize that was never a good answer. Without vetting the scope of work being requested and just being overly enthusiastic I was inadvertently raising performance expectations and leading my firm into trouble down the road.
As a business, A&E due diligence firms take on a substantial amount of liability which builds up over time and can at any time cause a firm great financial difficulty. There a myriad of code and regulatory issues to consider as well as the nuances associated with the mixture of design and materials and geographic area, a complex and daunting task which is made even harder in the short timeframes dictated by the market place. Most clients appreciate the complexities of the assignment but there is an dangerous underlying expectation of perfection which is important to manage throughout the project cycle.
Clients come to the due diligence firms often expecting a team of experts can be on site at a moments notice, and develop a full understanding of the deficiencies and potential liabilities after just spending one and two days on site. In the initial sales or project meetings it is important to manage the tone for the relationship by defining what are reasonable expectations for services contracted for. Let the client know up front how you plan to respond and communicate about issues arising from the inspections, and develop contract language which clearly defines the level of liability the client can expect at the conclusion of the project based on fees, scope and services outlined in the contract.
Assign the Project Manager the responsibility for one of your firm's best defenses against unrealistic client expectations – documentation; and more A/Es should actually enforce their existing internal documentation policies. Poor or missing documentation often expose a firm to a host of legal issues which should have been avoided.
Most importantly don’t over promise. Many business owners, eager to please their clients, fall into the trap of promising too much, providing extra services without increased fees or documentation of understanding of casual agreements during the course of a project. The best way to avoid many of these casual agreements is to consider that every hour you give away is fees your business is losing.If you have a valuable client and you decide to provide an extra two hours of your time or services, let the client know that you’re giving extra time and why. You need to make it clear that this is a one-time occurrence and not something to be repeated, and let the client know that even when they get only what they contracted for, they are getting valuable service by billing the normal amount and offering a like credit. Numbers are what all business relationships remember and is the only sure way your generosity will be credited.
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