Shadow Asset Management: Performance boost for heterogeneous portfolios

A mysterious name, clear objectives: With Shadow Asset Management, individual properties and portfolios can be optimized, income increased and costs reduced.

April 21, 2020

The difference between shadow asset management and the well-known asset management: the in-house asset manager gets a reliable extended arm – the so-called "shadow" asset manager. This is increasingly necessary for small portfolios that have become interesting for institutional investors due to the shortage of properties.

Imagine an investor who has acquired a portfolio of 50 properties across all asset classes. However, when it comes to support with his asset management team, he is reaching the limits of his personal capacity. Because the property or portfolio reports to the fund management are only the tip of the iceberg.

If the various assets are distributed nationwide and located in locations with different characteristics, a team of well-trained real estate generalists needs to be looked after. Because a B or C location such as Detmold, Herne or Husum requires different market knowledge than one that is in a top location at an A location.

No matter how heterogeneous the real estate: the goal is a performance in the interests of the investor. The analysis of the properties according to market and location conditions, SWOT analyzes as well as the joint strategy development with the owner's asset manager, budget creation, management and control are interrelated. Another important element in achieving this goal is rental management. This includes not only the acquisition of new interested parties, rental contract negotiations up to the conclusion, including drawing up the contract, but also timely renewals.

The complete outsourcing that we are talking about here also includes complete success monitoring, not only of our own work, but also that of the service providers commissioned by the owner, such as external property managers, center managers, facility managers and technical planners.

When developing strategies in close coordination with the owner's asset manager, extensive restructuring and conversion of individual properties are playing an increasingly important role. This includes reallocating areas or the entire asset as required.

This currently applies, for example, to retail spaces that extend over several floors and may have previously been used by a single tenant. Here, in cooperation with architects, structural engineers and civil engineers, optimal space allocation (if necessary with conversion of individual upper floor areas into office or residential units) must be planned, appropriate cost estimates created, tenants acquired for the corresponding areas and corresponding contracts negotiated.

Negotiations with prospective tenants, but also with existing tenants, are part of lease management and maintenance of the tenancy agreements. A good asset manager is of course familiar with the current market rents, which often differ considerably from the published prime rents, especially in retail, and has a feel for cleverly balanced incentives in order to rent the property for the owner in the best possible way.

Meticulousness is required when reporting on property and portfolio level according to customer standards. Detailed knowledge of the property and the market is a prerequisite for a good shadow asset manager, not only when accompanying appraisers for the annual revaluations that are accurate to the deadline.

But even with modular asset management components, the right shadow asset manager can be the temporary or long-term alternative. Purchase and sales support as part of a holistic AM mandate or an interim holistic asset management can be the solution for investors and owners.

Bettina Meckel,Team Leader Asset Management Düsseldorf
Bettina Meckel
Team Leader Asset Management Düsseldorf