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Back-Office Lift-Outs and CRE Benefits
Institutional real estate investors are attempting to boost CRE returns by handing off non-core tasks like accounting, compliance reporting and administration teams. As a result, leaders can focus on specific activities, like investment decisions, capital allocations and asset performance analysis.
Once upon a time, outsourcing was used to hand off those back-office responsibilities. However, according to a recent CBRE article, “Beyond Outsourcing: The Rise of Back-Office Lift-Puts for Institutional Real Estate Investors,” the more appealing solution can be—lift-outs.
Lifting Out versus Outsourcing
Outsourcing means turning over back-office tasks to a third party. Lift-out goes one step further by moving a company’s commercial real estate personnel and their responsibilities to a trusted third-party provider. This means that the company’s back-end team is intact and continues to work on the same portfolios and tasks (while offering their experience to the third party_. Meanwhile, the company also benefits from the third party’s specialized knowledge and expertise.
“Going beyond outsourcing, a lift-out offers a more employee-centric approach by enabling staff to continue in their existing roles at a new, third-party organization,” the article said.
Lift-Out Benefits
The article noted three lift-out advantages, especially for real estate funds:
Disruption minimization. The process keeps established teams, their leadership and their experience, which helps maintain operational consistency while minimizing disruptions.
Scalability. Lift-outs can help firms reallocate fixed costs and standardize processes across regions and globally without a decrease in quality. “The ability to detail and charge fund administration costs to the fund is another attractive feature,” the article added.
Technology improvement. Outsourcing back-office functions to a third-party provider means firms can benefit from advanced technology without a large upfront investment. The company can then focus on growth initiatives for its core business.
Lift-Out Best Practices
The article pointed out that a CRE fund or company doesn’t just proceed with a lift-out strategy. It recommends the following practices:
- Find the right partner, one that shares the company’s goals
- Perform due diligence, including staff location, data governance and compensation
- Be realistic with cost expectations
- Establish a clear organizational structure and engage trusted leaders
- Ensure clear and effective communications
- Reassure the employees involved that their job roles, compensation and development opportunities aren’t harmed
- ◦Sale/Acquisition
- ◦People
