Real estate investing has been changing for decades. Since the financial crisis, trends like density and urbanization have driven investment types and property choices. And now with real estate valuations on the rise and potential Qualified Opportunity Zone incentives, more startup and smaller investment funds are under pressure to scale up along with the larger competitors. But, they need the right support team to make the business work.
The ability to stay focused and disciplined on the investment thesis—and to pick the right strategies—would not be possible without a high degree of competency and decision support from a fund’s administrative infrastructure. But, smaller real estate investment firms starting, growing or changing funds may not have the established resources—or the bandwidth to find them—and they may want to consider outsourcing their administrative, compliance or HR functions to avoid adding too much infrastructure too early.
Startup investment firms have the same needs as established firms, but little or no resources to get to the same kind of informed decision-making. When it comes to running the business, outsourcing a CFO provides accessibility to a business-savvy finance/accounting professional who can partner with the General Partner (GP) to avoid costly mistakes later. When a fund manager knows the rest of the business is in good hands, he or she can focus on the higher level decisions.
Outsourcing staff—whether it be a CFO, controller, HR coordinator or IT team—is a scalable cost the GP controls, and one that can ramp up or down with their business needs. Instead of hiring extra staff and having to maintain responsibility for their payroll and benefits, outsourcing allows a startup fund to learn from the best and implement what they need later, as funding allows. It also provides the flexibility all startups need to grow and thrive in the evolving real estate industry.
Moreover, a practice of CFOs that focuses solely on these types of projects, and one that is encapsulated within a CPA firm, offers extraordinary value, integration and scale for a client. Many startups may have to otherwise choose a less-experienced, junior candidate to stay within budget or hire a more skilled CFO and exceed their budget, in turn taking what little startup cash they have away from investment opportunities.
Real estate investment funds of all sizes, not just startups, have a lot to gain from outsourcing. Stay tuned for more Outsourced Services Series articles to learn more.
The Outsourced Services Series of articles illustrate examples of services real estate companies can leverage as they navigate the many strategies and decisions firms have to make. In each article, BPM professionals address trigger points that might drive these kinds of decisions.
Terry Hill is a Managing Director in BPM’s Advisory Group. Contact Terry at email@example.com or 415-288-6244.