Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by Canadian Alternative Investment for Pension (CAiP) in an article — by reporter Erik Sherman, “Pensions Shifting How They Manage Their Real Estate” — regarding Canadian pension funds having wholly owned subsidiaries do their real estate property management and the possible benefits that could accrue. Of course, similar upside could be achieved by any pension group or sovereign wealth fund that does similar.
Impact: Bringing property management in-house
Impact investing and management should be important to most investors, but especially critical for pension funds since they have a broad base of stakeholders. For a pension fund concerned with the greater good, the possibilities of creating more societal upside with their real estate investment dollars increases the closer they get to tenants.
Bringing property management in-house can bring greater efficiency and knowledge to the investment and investment process. It can remove some of the excess salaries, profit, or incentives paid at the top of the corporate structure to the previous private owners, president, or C-suite; thus, SG&A costs should be reduced. Additionaly, by having inside information on their own property management cost structure, they can better monitor and negotiate contracts with any outside managers they use for other properties.
A property management subsidiary can also be a profit driver in its own right because being brought in-house does not mean that outside clients have to be terminated or aren’t allowed.
Quoted article excerpts are below:
“By bringing the property management in-house, the pension fund should be making the actual management, maintenance, and governance of the properties more efficient and if desired, more in line with greater social and impact investment priorities,” says Michael Ashley Schulman, founding partner and chief investment officer at multifamily wealth management firm Running Point Capital Advisor. “Similar to many other industries, having a captive service provider, like a property manager, can not only provide direct cost savings by removing imbedded layers of salary, but sometimes even more importantly can provide significant insights into costs and direct market knowledge which not only can be applied to other properties, but can also allow direct oversight to avoid any possible problems with legal compliance, tenant selection, and rent collection.”
Schulman also noted that direct control can allow a pension fund or other large investors to create “true direct social impact and societal improvement increase tremendously if they not only own select properties but can also directly control their operation and management.”
I would give a thousand furlongs of sea for an acre of barren ground.William Shakespeare; said by Gonzalo in “The Tempest,” Act 1, Scene 1
Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-23-113