While financial analysis software for the commercial real estate industry is nothing new, there are a number of industry trends driving new developments on the software scene. From new technology applications to increased, wide-spread Internet access, a more sophisticated generation of financial analysis software is afoot.
"As the real estate industry becomes more sophisticated, so too must its software," says Robert Cummings, senior director of real estate applications for Windsor, Conn.-based SS&C Technologies. "Demands on the real estate industry are greater, and, in turn, the software vendors have to provide applications that process financial analysis information more quickly and more efficiently."
What's on the horizon The next several years will be critically important to the evolution of financial analysis software for the real estate industry, says Cummings. "Over the next several years, asset management portfolios, for example, are expected to continue to grow at extraordinary rates," he says. Yet, competitive pressures will demand a tremendous increase in productivity and a significant decrease in operational expenses, Cummings predicts.
"The scenario is further complicated by a new genre of cybertrading that could significantly redefine the investment management environment while creating even more pressure to reduce operational costs in order to remain competitive," he continues. Under this scenario, he says, investment management operations will have to function lean, smart and nimble. "There will be no room for redundant processing and endless reconciliation."
Above all, everyone involved in the process - from the front-office trader to the back-office accounting manager - will need immediate access to the same, consistentno matter where in the system it resides.
SS&C Technologies intends to achieve this model of efficiency and accuracy through Straight-Thru Processing, its software that provides integration of front-end trading and modeling and everything from portfolio management and reporting to back-office processing, clearing and accounting, says Cummings.
Facing competing needs, he says, many companies' Straight-Through Processing initiatives were back-shelved in favor of Euro and Y2K preparedness. "We expect that in 2000 and beyond, focusing on improving STP will become the No. 1 information systems priority of companies in the securities industry," says Cummings.
The goal, he says, is end-to-end global STP, spanning two dimensions: internal and external. Internal STP provides for linking systems of separate yet related business functions within the organization, such as portfolio management, trading, compliance, accounting and risk management, Cummings says. "External STP broadens the scope to include electronic linkages to other business and trading relationships," he says. Among those are, custodian banks, clearing agents, depositories, counterparties and clients.
SS&C has integrated some of its products, such as its CAMRA 2000 portfolio management system with new products such as its Antares 2000 trading system and its CAMRA Debt and Derivatives 2000 system. "As a result, we can now offer state-of-the-art, enterprise-wide STP solutions for our clients," says Cummings.
A galaxy of products SS&C's family of real estate investment analysis software also includes PRO-JECT for Windows, a comprehensive lease-by-lease real estate investment analysis tool. A client/server or stand-alone application designed for Windows, PRO-JECT allows the user to model any combination of office, industrial, retail and residential property types and then analyze the leases and future cash flows, says Cummings.
* PRO-JECT for Windows features office, industrial, retail, apartment and mixed-use templates; a simple graphic toolbar that offers a shortcut to functions; breakpoint and overage calculations with multiple CAM pools for retail; growth rates and operating expenses that easily input into spreadsheet format; global search and replace wizard allowing sensitivity analysis with a mouse click; and an online reference manual and tutorial.
* SS&C also offers SKYLINE for Windows, a lease administration and real estate property management accounting system. A client/server application designed for Windows, SKYLINE for Windows provides for multiple modules that process a unified flow of information including billing, accounts payable, tenant and lease database operations as well as cash, financial and tax accounting.
* And LMS 2000, SS&C's product for total loan accounting, servicing and asset management offers a Windows 32-bit client/server application to leverage the reporting power of a MS SQL server database, so all aspects of the loan management process can be integrated, from application and commitment to servicing and accounting and loan disposition. According to Cummings, the logical, user-friendly workflow means processing is intuitive and easy throughout all phases of the asset life cycle.
Above & beyond At Santa Barbara, Calif.-based Yardi Systems, the core property management product line includes full financials that are fully featured, providing a multitude of standard and customizable financial reports, says Karen Edgar, vice president of marketing for Yardi.
"Our asset management system adds quite a bit of financial analysis capability to the core program," says Edgar. "When managing large portfolios, the asset manager often needs to look at performance by region, property type, ownership and more."
Yardi's asset management feature provides an expanded data warehouse above and beyond what is included in the company's core property management software.
"As such, information from several sources can be stored in Yardi's centralized database structure, providing expansive reporting and analysis capability," says Edgar.
Some examples of Yardi's information sources include performance reports, attributes, one-to-many features, stacking plans and general financial analysis. For example, performance reports, as a general rule, will gather information from G/L totals and various values such as appraisal values and capital expenditures from the property form. In addition to providing analysis within the two industry guidelines listed above, the system provides for an unlimited number of performance tables to be established, allowing measurement of the property or portfolio to be very specific to each user's operating guidelines.
Up to 99 attributes can be established for each property, too, according to Edgar. "Attributes allow the users to quickly slice and dice their portfolio performance up to 99 ways," she says. This enables the users to quickly check the performance of all properties in the western region, or all retail properties, or a performance report quickly sorted and subtotaled by all property types, Edgar says.
The "one-to-many" feature is another customizable feature that allows flexible reporting elements to be built into the system is. According to Edgar, records can be created easily and attached to any of the data forms of the system, such as the property, tenant, applicant or vendor forms. "The one-to-many button is simply a user-defined table that is added to the system to allow for multiple data fields that can capture information on the subject at hand," she says.
"In addition to performance, leasing, occupancy and forecasting reports, Yardi Asset Management provides an extensive number of financial reports," says Edgar. Included in those are financial statements by period, property, account totals by period, account total summaries, account analysis by property and/or period, complex consolidations and more.
Yardi also has recently introduced a budgeting and forecasting system that provides a natural extension to the standard budgeting already included in the company's products. According to Edgar, with the budgeting and forecasting system, one can easily develop detailed lease-level monthly budgets and forecasts using a variety of user assumptions - growth, renewals improvements, lease-up periods for vacant space - and/or variations on actuals. "Exception reporting is perhaps one of [the system's] unique strengths in that it provides a field-level comment area for reporting all the variances that have been marked by the home office for explanation," says Edgar.
The unknown While the real estate industry may have an array of software solutions from which to choose, the question that still plagues software companies is: What type of real estate company is looking to use our type of software?
"Many of our products are typically sought out by larger firms," says Edgar. "However, as the marketplace becomes more and more competitive, the middle-tier companies are looking at similar solutions."
As a result, Yardi has examined delivery models that bring the power of these high-end applications to clients more easily, according to Edgar. "The Internet, of course, has enabled us to do this," says Edgar.
Indeed, the burgeoning growth of the Internet has enabled much of the real estate industry to simplify its financial analysis and this, in turn, has encouraged software manufacturers and vendors to use the Web as well.
"Yardi has Web-enabled its entire product line," says Edgar. "As a result, clients can opt to purchase our suite of products and easily roll out functionality to their field with nothing more than a browser installed at remote sites."
A simple Internet connection is all that is required. With this capability, there is no software to update, so IT operations are simplified. But at the same time, these higher powered systems require IT support in terms of client/server architectures, high-powered servers, database administrators and high-speed connections from the home office to the Internet.
"This greatly simplifies IT in terms of remote maintenance and database synchronization," says Edgar. "In other words, everything is central. So, though field operations in terms of IT support become more simplified, as the middle tier moves up to the more high-powered systems, they will quickly recognize the need for more sophisticated hardware and IT support."
On the horizon, Denver-based J.D. Edwards & Co. will debut the latest line of its property management solution - OneWorld Xe - in September. J.D. Edwards has offered real estate software and technology solutions for 10 years, and OneWorld Xe will offer Web-based lease administration and event-driven logic that can push information to users on a need-to-know basis, informing the user of upcoming lease expirations and over-budget projects, for example. A platform independent solution, OneWorld Xe also will reduce back-office paper usage, allowing users to attach objects - leases, floorplans or videos of properties for example - to a database so that users in the field or at the office can access and review them online. The ability to create a customized real estate portal using OneWorld XE is another facet of the product.
"In a recent survey, respondents were asked what were the most important things they want from their software provider, and they mentioned four things," says Andrew Rains, worldwide industry manager for J.D. Edward's real estate software operations. "They mentioned a strong, financially stable company, and J.D. Edwards is a public company, debt free with $1 billion in revenues. No. 2 was that they wanted the applications to be Web-enabled.
"No. 3 was that they wanted them fully integrated, and all of our applications are fully integrated," Rains continues. "And then No. 4 is deep functionality. Through working with our clients and having some very significant clients in the industry both in the project management industry and the real estate industry, we've worked very hard to have the best functionality in the industry.'
State-of-the-art software As user efficiency is the priority for today's financial analysis software companies, Beaverton, Ore.-based Timberline Software Corp. has been busy streamlining its products to fit the needs of a savvy real estate industry. Timberline's Property Management Extended Edition from its Gold Collection is a source for lease management and accounts receivable processing.
According to Tracie Misi, product marketing specialist for Timberline, this application offers a data structure that puts the lease document at the heart of the software, making it flexible enough to accommodate virtually any lease agreement, including multiple leases per tenant, multiple units per lease and multiple tenants per lease.
"Property Management adapts to unique lease clauses and calculations," says Misi. "What's more, it contains a broad range of standard inquiries and reports that provide the user with instant online access to stored lease and property information." This software can transform a lease agreement from a static legal document to a dynamic information generator.
Also from Timberline's Gold Collection is Advanced Retail, an optional add-on application that expands the retail lease administration, sales tracking, reporting and percentage rent functionality of Property Management.
"Advanced Retail automates the entire percentage rent process," says Misi. "The user indicates breakpoints, percentages and effective dates, then the software does the rest by calculating the overage rent, based on tenant sales reports or estimated figures. It also recalculates overage rent at year-end based on audited sales figures."
Because percentage rents can vary by department or sales category, Advanced Retail lets the user track and calculate them with user-defined sales categories. "The software's flexible sales tracing functionality makes monitoring the performance of every tenant, from the small independents to the national chains, easier," says Misi.
Advanced Retail also makes it easier for the user to investigate sales trends and communicate them to executive management, lenders, investors and tenants, says Misi. The software comes with multiple, pre-defined reports and inquiries, each of which can be modified using Timberline's Report Designer of Inquiry Designer.
Many companies, not just within the real estate industry but elsewhere, too, find themselves at some point questioning their focus, adds Yardi's Edgar.
"They wonder whether their focus is real estate or IT," she says. "We all know the answer. Every company not only wants, but needs to focus on its primary talents. That's what the right kind of software is all about."