Saturday, 10 November 2007

Performance Measurement in Real Estate Operation

Measuring the performance of single properties, portfolios or service providers like property managers are vital to any sound management decision: "What you measure is what you get!"

Depending on the depth and size of the organisation the measurement can take place at various levels and can then be aggregated upwards. From property to location to portfolio etc..
It is also important to measure the performance of service providers influencing the performance of the property: Asset Manager, Property Manager, Facility Manager or the own internal organisational units.

In order to establish measurements as management tools the "philosophy" of the property or the portfolio needs to be defined and broken down into targets to be fulfilled to meet the philosophy. What does that mean? Ambitious but somewhat achievable targets for rent and value development have to be set and determined which are the immediate factors determining their development. This process is best done by looking at historic data, available data from comparable (good performing) properties and/or property benchmarks. The measurement then includes the targets against their set values and the defined factors like tenant turnover, payment backlog etc. It is of great importance that these factors reflect not only what has happened, like already occurred payment backlog but also warning indicators like tenant turnover or late payments.

All of these performance indicators are then mapped against their targets in a graph which will show the decision maker at one glance where the performance is as expected or better and where attention is required. These graphs are produce at every level where measurement takes place and can be aggregated upwards: A graph for each property, each location, each manager or the entire portfolio.

When applied in the right manner, this can be one of the most powerful tools for managing a property portfolio.

The perform
ance indicators are based on the Balanced Score Card philosophy. Decisions based purely on financial data can only be reactive whereas the consideration of average contract durations, tenant turnover, payment moral etc., are early warning signs for developments and provide a guideline for areas to focus on.

For more detailed information please also visit the website of Berlin Portfolio Ltd or contact the author by clicking on this link: E-Mail

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