November 25, 2022
WHITEPAPER

Innovation as Leverage During Economic Downturns

Knowing that it’s conventional for recessions to last between 18 to 24 months, we see our customers - commercial real estate investors - examining each and every deal they screen with even more meticulous care during this unpredictable time. 

The Disconnect Between Buyers and Sellers in a Downturn

In the face of economic uncertainty, investment firms often see their pipelines shrink as underwriting becomes more conservative. The COVID-19 pandemic, leading into the economic downturn we experience today, has created a disconnect between the buying and selling of traditional asset classes. Because of this, we are seeing world-leading commercial real estate investors reposition their investments in order to maintain their returns. 

To support this pursuit, many are turning to deal management software to help.

Maintaining and Growing Deal Momentum in the Face of Uncertainty

It is common for multi-sector CRE investors to reposition themselves when faced with a recession. A combination of conservative underwriting and a desire to minimize exposure to any one deal can also result in smaller deal sizes. 

That said, investors with a mandate to deploy a certain amount of capital will find themselves abnormally busy, as they need to pick up additional deals to meet that capital threshold. This results in more screening, underwriting, and parallel due diligence streams. 

A pipeline with a higher volume of deals quickly becomes disorganized and requires the correct tooling to maintain momentum.

By implementing deal management software, teams gain:

  • A streamlined process for screening deals: Pipeline capacity can increase, as it becomes easier to pass fast on unsuitable deals, and focus attention on the best ones. With source data carefully extracted and made ready-to-use, top of the funnel market data is arranged for easier analysis of comps, proprietary data and benchmarking. Multi-asset portfolios are easier to visualize and organize than traditional spreadsheets.
  • An easier way to manage the flow of information: As a deal moves through the stages of an acquisition, workflows can be templated, tasks can be managed, and every detail has a home for a full team to view and collaborate on. Even though firms may have made strategic shifts into new asset types, the technology doesn’t lag behind the pivot.
  • A standardization and automation of workflow: Ensuring consistency of critical compliance, reporting and approval processes is key. Stakeholders are given the analytics they need, in a way that accelerates decision-making. Necessary elements of the process can be automated to assist the deal team when they need it most.

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Finding the Upside of a Downturn

From another perspective, plenty of CRE firms are using the downturn as an opportunity. For CRE firms managing lower deal volume, it’s a more meaningful use of time to invest in your team and get up to speed on the most innovative solutions out there in the world of proptech. By re-tooling during the recession, firms can build up their arsenal of software that helps them work smarter. Head of deal teams know that improving their deal management process is wise when there is less volume of deals to oversee. 

Using this “downtime” to implement and adopt new deal management solutions is optimal. This way when deal volume inevitably picks back up, your team will be ready to capitalize.

Beneficially, firms that take on this perspective are able to:

  • Maintain efficiency without needing to grow the team: They look for tech solutions that help bridge gaps and remove mundane tasks from the investment process by relying on smart automation. This ensures everyone involved in the investment process is aligned and up-to-date on deal status, tasks outstanding, important upcoming dates and can gain key insights about the performance of the process that will help to continuously improve it.
  • Sort and report on mass amounts of data with one source of truth: Replace error-prone or out-of-date spreadsheets with a database-backed solution that makes it easy to maintain a single shared source of truth for an entire organization, and completely eliminates all the manual effort that goes into reporting on the pipeline to various stakeholders.
  • Leverage historical data and learn from their  surroundings: Using a data warehouse to capture detailed comparable market data about sales, leases, financials, and more, helps to better understand the markets in which they invest. Data is double-validated to give deal teams assurance in their choices. This accuracy allows acquisition teams to underwrite with confidence.

All in all, despite the uncertainty of the pace of the recession. CRE investors that partner with Altrio are wisely putting their plans into action by using a deal management software that supports their business outcomes regardless of their strategy.

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