Portfolio Management Archives

ejinsight: Why commercial real estate sector needs proptech solutions now

Original article

When it comes to tech adoption, the commercial real estate (CRE) industry has typically lagged behind other sectors. However, over the past few years the industry has begun to take property technology - or proptech - seriously. Last year, proptech start-ups raised US$625.9 million in APAC, and in 2018 this figure was a record-breaking US$1 billion.

The industry has come to embrace technologies that include artificial intelligence (AI), augmented reality (AR) and the Internet of Things (IOT). And the applications of these solutions have also been far reaching - ranging from smart property management to office space design.

But the adoption of technology has been uneven across the sector. Some aspects, such as facilities management, have taken to innovations more easily. However, the investment and transactions side of commercial real estate have remained more resistant since leasing professionals prefer to meet in person to share data with clients, rather than using technology.
Solving the day-to-day pain points
For example, when making leasing and investment deals, CRE professionals are still largely reliant on physical visits.

Introducing OfficeBlocks - Zoom in to commercial real estate data

JLL and Risk Integrated launch new AI technology to revolutionise real estate leasing and investment
OfficeBlocks empowers decision-makers with rapid data access and insights to compare and analyse local and regional commercial real estate opportunities

This innovative and intuitive suite of tools brings together the power of AI and big data to provide actionable estimated insights into commercial properties across major cities in Asia Pacific, along with detailed portfolio analytics software

Hong Kong and Singapore, October 15, 2020 - Leading global real estate consultancy, JLL (NYSE: JLL), and risk management company, Risk Integrated, today unveiled OfficeBlocks, an industry-first property technology – or proptech – suite of tools set to transform commercial real estate leasing and investment.

OfficeBlocks gives investors, occupiers and commercial real estate (CRE) brokers rapid data access, insights and analytics for commercial real estate decision making. This innovative and intuitive suite of tools combines artificial intelligence (AI), big data and mobile communications, to provide immediate insights and analysis into commercial real estate across major cities in Asia Pacific.

To date, investors, occupiers and CRE brokers have often lacked real-time and actionable insights into commercial properties and decision making. They have instead been reliant on manual, time-consuming methods of information gathering - from physical visits of properties to analysis of complex data-filled reports. OfficeBlocks is set to transform real estate decision-making by taking millions of data points and processing market intelligence in a meaningful manner to uncover actionable insights - from rental performance to property availability and portfolio analytics.

By combining JLL’s comprehensive 25-year industry data set with the cutting-edge AI of Risk Integrated, OfficeBlocks provides unrivalled commercial real estate insights and analytical tools including:

AI estimated rent and floorspace for office properties across Asia Pacific.
Comparison and benchmarking [...]

October 15th, 2020|

Risk Reporting for Equity Investors in Commercial Real Estate

Introduction
Risk Integrated has extended its well proven Specialized Finance System (SFS) to include equity risk metrics for commercial real estate. Over the last 16 years the SFS has been developed primarily to provide credit risk metrics such as probability of default and stress-loss for commercial mortgages using cashflow simulation. The credit metrics are based on the cashflows to the loans whereas the equity metrics are the “residual” cashflows to the property owners and include the effects of leveraging, interest rate swaps and currency effects for multi-currency portfolios.

For equity investors the SFS produces familiar metrics such as the internal rate of return and cash on cash return, in both the base-case and across thousands of possible market and tenant scenarios. The figures below illustrate the IRR for a deal without and with leverage.
Returns without Leverage

Returns with Leverage

The links below give the complete reports for the deals without and with leverage, and include the credit report on the debt for the leveraging loan.

Equity Report for Unleveraged Property Investment
Equity Report for Leveraged Property Investment
Credit Report for the Leveraging Loan

Dr. Chris Marrison
CEO, Risk Integrated
Chris.Marrison@RiskIntegrated.com

March 6th, 2018|

Dissecting CRE Loan Risks - Lease, Tenant, Interest Rate and Refinancing Risk

Introduction
This paper discusses an approach for dissecting CRE Loan Risks -- determining the relative contributions of lease risk, tenant risk, interest rate risk and refinancing risk for CRE assets. The approach applies to both individual loans and portfolios. The paper also discusses potential risk mitigation strategies based on this information.

Risk models typically give single numbers for the probability of default and loss given default. More advanced models also provide the annual risk profile, identifying spikes in the risk associated with the structure of the deal or portfolio. With cashflow simulation we can go a step further and cut apart the causes of risk, e.g., into lease risk, tenant default risk, interest rate risk and refinancing risk. This identification of the risk sources provides lenders with valuable information as to how they can mitigate the risks, rather than just accept the risk grade.

This analysis is used at two levels: for individual deals and for complete loan portfolios.
Individual report example

Portfolio report example

Examples of these reports can be downloaded with this article below.
Risks to an individual deal
This individual deal report shows that there is a spike in lease risk in 2017, and then there is ongoing moderate risk due to tenant default and finally a large refinancing risk. If this deal was under consideration for credit approval, the risk may be mitigated by for example changing the amortization rate. If the asset was already in the portfolio there are fewer options for changing the loan terms but it may still be possible to add a swap for example to reduce the risk of a poor exit yield if interest rates rise. If there is no obvious way to change the structure, the strategy may be simply to [...]

May 26th, 2015|

Beyond Regulation: Using Risk Measurement in Profitably Growing the Commercial Mortgage Business

All Publications >> Portfolio Management

March 6th, 2013|

Risk Integrated Adds New Suite of MIS Reporting Tools

All Publications >> Portfolio Management

Risk Integrated announced today that it has added new functionality to its system for commercial real estate risk measurement. Its Specialized Finance System has been extended with a new suite of reporting tools to create an enterprise-level Management Information System.

November 9th, 2009|

Protecting Commercial Real Estate Portfolios

All Publications >> Portfolio Management

In a recent article in Mortgage Risk magazine, Chris Marrison advocates cashflow simulation as the best solution for measuring risk across a commercial real estate portfolio. He points out the inherent limitations of the other main approaches such as a Value-at-Risk framework, standard cashflow modelling, and scorecards.

February 6th, 2008|

How to Prepare for a Crash

All Publications >> Portfolio Management

Historically a downturn in retail real estate has been echoed five quarters later in the commercial property market. In a recent technical article appearing in Institutional Investor's Real Estate Finance & Investment, Risk Integrated's CEO discusses methods to measure and restructure risk in a CRE portfolio.

November 9th, 2007|

Basel II and the Sub-Prime Blow?

All Publications >> Basel Capital | Capital Management | Portfolio Management

Peter Andresén weighs the positive impact Basel II risk management procedures, already in place in most European banks, will have on their commercial real estate lending books. The Mortgage Finance Gazette features his discussion in their October 2007 issue.

October 18th, 2007|

Concerns about Concentration Risk in CRE Portfolios

All Publications >> Portfolio Management

Community banks traditionally have shunned formal risk management systems, preferring to rely on their experience, intuition and deep community relationships. But in the new era of commercial real estate lending, federal regulators are pressuring even the smallest banks to upgrade their portfolio analysis capabilities to avoid the pitfalls of past downturns. In an online news article entitled Small Banks, Big Risks on National Real Estate Investor's site, Risk Integrated's CEO, Chris Marrison, raises concerns about concentration risk in the CRE portfolios at small and medium-sized institutions.

February 1st, 2007|