Real estate managers face rising operational costs as investor reporting demands grow

The real estate market saw a marked slowdown last year as a result of the Covid-19 pandemic, with business opportunities shrinking and deals being put on hold. However, with confidence returning, this asset class is going from strength to strength – with strong opportunities for investors across the world in both traditional and fast-growth sub-sectors. Real estate debt, once a relatively niche proposition, has now grown into a highly attractive, competitive market.

At the same time, though, managers are facing increased operational costs as investor reporting demands continue to rise. Furthermore, this trend is set to continue, fuelled not just by investors themselves but also regulations, new stakeholder considerations such as ESG, and greater technology-led capabilities.

Edwin Chan, Director, Head of UK Funds Business Development at Intertrust Group, says: “For Intertrust Group, this growth is a compelling business opportunity as real estate managers increasingly need operational support – particularly big fund managers. We see many non-investment functions under pressure, for instance, and can provide the necessary support in the form of high-quality, tech-enabled outsourcing.”

Jonathan White, Commercial Director – Funds at Intertrust Group, adds: “In terms of outsourcing in the financial services industry, the harder something is, the more help managers need – so we see areas such as private debt and real estate needing the most help and dedicated support.

“Real estate in particular is trying to embrace technology and also focus on growth – there are plenty of distressed opportunities, for instance – but trying to become institutional is very hard for this group because so much accountancy is needed.”

Residential sector ‘set to boom’

According to Chan, real estate continues to draw investors and remains a compelling investment opportunity. He highlights four sub-sectors of note – commercial, residential, care homes and logistics.

“Commercial real estate is under profound stress and we expect an increase in the redevelopment of assets as working-from-home and retail drives subsector changes,” he says. “Residential, in contrast, is set to boom – social and economic shifts are resulting in positive fundamentals around the Private Rented Sector (PRS), for example.”

“Care homes are a major sub-sector growth market. Off the back of Covid-19, new operators will look to disrupt the market globally as stakeholders learn from the mistakes of 2020. There is a big focus on super-high-quality medical facilities. We see the private sector dominating this market – even public sector projects are outsourced to private enterprises.”

Chan also notes that demand has rapidly risen for data centres and logistical warehousing.

These hi-tech facilities are central to economic growth and investors are focused more on these assets in all markets. There are big opportunities in our view,” he adds.

Record growth for SPVs

Alongside real estate sector growth and rising reporting demands, appetite for Special Purpose Vehicles (SPVs) has also skyrocketed to manage multi-faceted, multi-jurisdictional and multi-stakeholder programmes. Intertrust Group has seen record growth in SPVs and expects continued growth going forward.

Chan concludes: “Intertrust Group is very well placed in this space. In fundamental areas such as administration support and accounting we offer a consolidated approach, driven by our industry-leading technology, and a view right up the value chain and across all entity levels. It is this enhanced level of support that managers are looking for as they compete in the global real estate space in the most frictionless way possible.

“We expect costs will rise with regards to running funds, but firms such as Intertrust Group can help alleviate cost pressures through the use of our technology.”