Like a ship’s captain trying to see as far as possible and cursing the fog that hides his view, transparency is highly prized by property investors.
Asset managers need to make judgment calls worth millions of pounds based on the best information they have and the best investment telescope they can get their hands on.
Property has stubbornly remained one of the most opaque asset classes, but in the current regulatory and financial climate, investment decisions must be fully auditable and open to scrutiny by shareholders, auditors and regulators. So how has this opaqueness persisted?
The truth is that obfuscation suits some in the property market. For some owners of commercial real estate, having an instant and public value put on their holdings does not suit their business model, which is predicated on convincing buyers to pay as much as possible.
Clients tell us our platform has increased the levels of transparency significantly. Indeed, such is the level of transparency offered that a number of organisations have asked us to remove their portfolios from our platform. This confirms our technology is breaking new ground. It may be uncomfortable news for those who have got used to operating in the property fog, but an independent organisation, using independently sourced data, is well placed to provide a clear overview right across the sector.
Currently, the property market uses definitions such as ‘Core’, ‘Core+’ and ‘Value-Add’ as euphemisms for an underlying assumption of the value of a property. This is a relative scale per portfolio, not an absolute scale for the market or for a country; because agents are trying to upsell, the majority of the market is given a positive rating, which makes this broad assessment worthless.
What property investors would like to see is an objective and uniform rating system for property quality, using data to create a universal score; this is what we believe we’ve achieved with our OfficeRank and RetailRank scores, our quality measure for commercial property. Removing human judgment or interpretation is crucial to derisking the property market for investors, and every building needs to be assessed using the same methods and data structure.
In this way, even if you overweigh certain elements there is still one international standard applied to all - and that is invaluable for an asset manager who wants to be able to compare, benchmark and make a value judgment on property in different countries without having to do their own detailed research.
Controlling the flow of information about property businesses and portfolios is no longer an option; with greater transparency, marketing a portfolio will become easier. However, marketing that portfolio as better than it is will become harder. Measuring asset management and rotation will also enable investment funds to show their track records - alleviating risk from upstream investment and rewarding the most effective asset managers.
Transparency isn’t about driving down the value of a property portfolio; it is about making clear the details to enable a fair price where neither party loses. Openness should be the default position when it comes to real estate information, but the industry has failed to produce the required level of open brokerage from within itself and the market has been crying out for an independent data feed, untainted by agents’ vested interests.
Bringing transparency to the property market is no easy feat, but the ultimate result is not in doubt; those who embrace the new era of transparency will see their businesses grow. Business models that thrive on opaqueness will have to find their value-add elsewhere.
Teun van den Dries is founder and chief executive officer of GeoPhy