Institutional investors are finding a better way to price assets and build Discounted Cash Flow models.
The building and submission of Discounted Cash Flow (‘DCF’) models has become increasingly complex, ever more demanding and riskier since the 1990s.
Did you know that 7 out of 10 experienced surveyors cannot calculate the same IRR for a vanilla deal when using traditional appraisal software? Having the software expert on site did not help matters either according to one of the UK surveying firms that conducted such testing.
7 out of 10 experienced investment surveyors cannot calculate the same IRR in a test room scenario.
These are results from leading UK Commercial Real Estate Firm when using leading enterprise software.
Bad appraisal software damages morale and harms business
Leading Executive search firm Bohill Partners’ London CFO/COO Roundtable shed light on what Managing Directors and Vice Presidents have been sharing privately: “The creation and submission” of DCF models “weighs heavily on job satisfaction”.
Figure 1. Model building is weighing heavily on job satisfaction.
Multiple upgrades since the 1990s have led to bloated, clunky and slower software systems – which in turn drive highly-risky workflow processes for teams. The CFO/COO Roundtable calls out ARGUS Enterprise software as cumbersome to use. And even when it works “well”, it is a challenge to upskill colleagues or simply fill the right roles with the subject matter expertise.
Overall, ARGUS Enterprise and Yardi were singled out for being “culprits” in the commercial real estate industry mission to find fit-for-purpose portfolio and appraisal software.
Figure 2: ARGUS Enterprise is called out by CFOs/COOs
Full CFO/COO Roundtable report available for download here:
We maintain that enterprise software developed over the past 30 years can have benefits for Assets Under Management (‘AUM’). Particularly where hundreds of records about tenant contracts and specific property management inputs are confirmed and need to be accessed via electronic file systems.
However, the highly-active area where enterprise software fails is in the rapid and intuitive pricing of new opportunities and the hypothetical repricing of AUM when looking forward to hold or sell. This pricing activity only intensifies in times of volatility as buyers and sellers rapidly adjust their opinion on value.
It is a highly-competitive field in Capital Markets. Successful Commercial Real Estate (‘CRE’) professionals “generally do not have interest or aptitude” to take their intuition for a good deal and “translate this into financial and technical tasks” according to the Roundtable.
So what does fit-for-purpose cash flow technology look like? What does it aim to do which legacy enterprise software simply fails to deliver?
While this is not an exhaustive list, modern appraisal software must:
• Support CRE Capital Markets and Fund Management activity rather than be obstructive and time-intensive for a clutch of niche software-user colleagues.
• Share transparent results which all senior and junior professionals may review confidently and quickly – i.e. not a black-box file that cannot be audited in a timely manner.
• Provide an intuitive software experience that do not hamper busy professionals and distract fee-earners from the real estate opportunity at hand.
If the above sounds like what your team needs to price CRE opportunity pipelines, get in touch to discuss how Dashflow supports business workflows.