When it comes to the way real estate investment firms manage key financial analysis processes, 27 percent of respondents said they use real estate investment management accounting software.
However, the vast majority of respondents still depend on Microsoft Excel to handle critical parts of their business. Six out of 10 respondents (62 percent) use Excel to track their loan and/or debt information. Likewise, nearly half of respondents (48 percent) use Excel to calculate their waterfall and promote structures.
“The processes that are still being managed in spreadsheets are very error prone and using spreadsheets creates a risk of calculation errors,” Barbier points out. “I’ve seen it happen so many times where someone makes an error in the formula, and the company ends up miscalculating the distribution for investors.”
Barbier says that real estate investment managers would benefit from using technology to streamline and automate these financial analysis processes, even if it’s a simple investment structure.
Given the risks associated with the ongoing use of Excel, why haven’t more organizations hopped on the proptech train? The answer is fairly simple, according to a number of experts: Excel is cheap, easy, and comfortable.
In many ways, Excel is a universal language for financial analysis because the spreadsheets can be transferred from person to person and organization to organization with very little effort. Moreover, people trust Excel because it’s transparent—users can see the formulas, numbers, and calculations
But Excel spreadsheets are also very personalized, Barbier points out, which creates an additional layer of risk for organizations. “The way someone builds a spreadsheet is very specific to that person,” he explains. “When you’re tying key processes to one person, you’re exposing yourself to key person dependency.”
In other words, without the person who built and managed the spreadsheets, an organization’s entire financial analysis process is jeopardized. Barbier says proptech can solve that problem and mitigate the risk associated with key person dependencies.
According to the WMRE survey, 64 percent of respondents say their real estate investment accounting software integrates with their property management system. Forty-four percent say it automates financial consolidations, and 42 percent say it calculates asset investment and investor performance metrics.
Only 16 percent say the technology calculates waterfalls and promote structures. And 21 percent say it manages complex ownership structures.
For organizations that are looking to increase the speed of their financial analysis or leverage lots of data, Wagoner warns that Excel won’t be able to handle the job. “Moving faster and making smarter decisions requires technology,” he adds.