Advisory: Real Estate Treasury Management

By Glenn P. Murray, Executive Director of NOI Strategies


Buildings aren’t the only growth assets managed by commercial real estate companies. They manage cash. And lot’s of it.

The Real Estate treasury management function is in many ways a business within a business. And like any other asset, treasury needs to be proactively managed, properly forecasted, and readily adapted to market changes in order to maximize its financial performance.

The commercial real estate industry collects over $485B in rent and other income transactions per year in the US alone.* Combine this with outbound cash flows and inter-company cash movements, then add up all of the operating, reserve, security deposit, and investment account balances, and you have an annual domestic real estate cash flow pool that easily tops $1T.

With number like these, one might assume that the importance of treasury management is self-evident. But surprisingly few real estate companies have fully embraced their accompanying role as fiduciaries. For most, depositing rents, paying bills, and reconciling accounts defines the limit of their cash management responsibilities. This unfortunately results in most real estate companies simply forfeiting the upside inherent in their operating cash flows and liquidity.

Banks, on the other hand, fully recognize the power of real estate treasury and they have exploited the industry’s oversight for decades. Banks love real estate companies for their large floating balances, consistent cash flows, and numerous fee-generating accounts. And they absolutely adore real estate operators for the huge spread they surrender each month.

This lost spread amounts to millions of dollars per year for many real estate companies.

Treasury management is primarily comprised of the following major components: debt management, daily cash management, cash forecasting, risk management, hedging and insurance management, investment management, spend management and banking relationship management. As with other business processes, optimizing and automating the transactional components of treasury offers considerable savings and efficiencies. But, in addition to improvements on the expense side of the P&L, aggregate liquidity and cash flow are powerful assets that can also deliver meaningful income.

How much of an impact can effective treasury management have on a real estate organization? At NOI Strategies, we have helped even medium sized real estate companies realize results into the millions of dollars per year. And as rates inevitably rise, these companies are now on the leading edge and are poised and ready to realize even greater upside.

One Size Fits All (Except for Real Estate)

Managing real estate treasury is easier said than done.

As compared to other industries, real estate generates a relatively low volume of cash management transactions but its processing rules are highly complex. For example, huge collection operations such as American Express and Verizon will accept any of the millions of payments sent to them each month and deposit them into a single account. However, even a small real estate operator with a few hundred transactions is likely to have dozens of operating bank accounts into which they make deposits – one for each property. And the number of exceptions are especially high. For example, they may have any number of reasons not to accept certain payments from tenants such as for those in legal, stipulation, bankruptcy, or if someone else other than the leaseholder is attempting to make the payment. Further, non-full payments must then be applied to open line items (which in many cases can number in the dozens) the way the tenant intended.

Complexities like these render most cash management solutions ineffective for real estate companies. Thankfully, numerous banks and technology companies have built cash management solutions that are tailored for real estate such as:

Remote Deposit Capture. These devices literally bring the bank branch into your office. Facilitated by “Check 21�� legislation in 2003, payments are scanned into the RDC which sends the check or money order image directly to the bank for deposit. Daily trips to the branch are eliminated. So is the need for local accounts, as deposits can be made from anywhere into any bank. Most banks now offer RDC’s. Some property management systems, such as Yardi\’s CHECKScan™, now offer RDC as an integral part of their application. RDC is best suited for on-site use at a property and for central offices with low volume.

Real Estate Lockbox Services. For higher volumes, there are several lockbox services that have been built specifically for real estate. Third party services such as those provided by Yardi COLLECT and KLIK Technologies have strong exceptions processing capability, integrate with all of the major property management systems, and are able to deposit payments into any bank allowing for pricing based upon overall volume as opposed to the ‘per bank account’ model typically offered by banks. They also offer improved float capabilities as they ensure funds are deposited into accounts faster.

Automated Payables. Several real estate-specific automated payables solutions emerged into prominence over the last decade. Solution providers include Nexus Payables, AvidXChange, Yardi PAYscan and PAYplus, Basware, and Realpage OpsTechnology. All of these eliminate the burden of the procure-to-pay process and open the doors to spend management and strategic sourcing initiatives.

Debt Management. Debt management solutions such as those provided by Resolve and Chatham Financial allow for centralized management of loan information, analysis, covenant tracking, and FAS-157 (debt mark to market) compliance.

Treasury Workstation (TWS). Real estate complexities and the large number of bank accounts play perfectly into the capabilities of a treasury workstation. Cash management, bank fees, debt issuances, coupon payments, financial investments, bank contracts across multiple banks can be managed using a single TWS interface, instead of multiple bank websites. In addition to facilitating transactions, a TWS can help to optimize liquidity by using data to forecast future cash flow requirements.

You Can’t Just Set it and Forget It

All of these solutions serve to accelerate cash flow, maximize liquidity, improve operating efficiencies, enhance visibility, and reduce costs.

Many business processes can be set to automatic once optimized. The exact opposite is true for treasury management. Volatility persists in banking regulations, rates, fees, lending, international exchange, and other factors thus requiring constant analysis, planning, and tuning.

Treasury management is an especially complex and iterative practice that is particularly difficult for real estate companies to understand, no less master. It requires a variety of expert skills, specialized solutions, commitment, and fortitude.

But, with its bottom AND top line upside, few areas pack a punch quite like treasury management.

(* US. Census Bureau, 2007 Economic Census Summary Statistics, NAICS Code 53, Lessors of Real Estate)

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