Why Private Equity Firms Can Be Best in Managing Real Estate Investment Projects?

Real estate continues to be one of the most preferred investment options in the Middle East in general and Gulf Corporate Council (GCC) countries in particular. Nevertheless, the current credit crunch and increased competition on similar type of real estate products, had resulted in a relative slowdown of new real estate investments. Private equity and other capital investment firms can play an important role not only in reviving this sector but in improving the current return on investments as well as become more responsive to customer needs.

The Middle East and GCC regions have growing needs for real estate investments in healthcare, education, affordable housing, hospitality and entertainment and logistics centers including warehouses. In addition, there is need to invest in infrastructure projects to meet the population growth demands as well as replace the ailing infrastructure. Further, the growing trend of moving the responsibility for delivering those capital asset projects from the public sector to the private sectors, creates new lucrative type of investments. PE firms can play a perfect role not only in delivering these projects but for reaching out for the institutions who will be keen in owning and paying for those facilities when built. Those PE firms know the size of opportunities those investments will bring to them and their investors who always demand for better return on their investments.

No organization understands the value of investment and the need to exist of an investment at the right time and at the right return like private equity firms do. They understand that they need to look for investments with the desired return on investment and a risk exposure that they can manage. They also understand that there should be no personal strings attached to the investment and will be ready to exist at the right time and price. In addition, they know that they have access to different sources of funding at preferred rates that others do not have. Further, they know that they have access to a wide variety of customers for their investment products that others do not necessarily have.

Nevertheless, what Private Equity (PE) firms might not be best at is managing the design, tender and construction delivery stages of a real estate project. Although no one expects that a PE firm will play the role of the architects, engineering consultants, contractors and vendors but for sure, they need to play the role of the project manager or the investment fund manager. To able to play this role successfully, a PE firm needs to have the right project management team members, the right project delivery processes, right project management technology and the right business unit to ensure the sustainability of all those right actions.

Having the Right Project Team Members

Managing projects successfully is no different than any other business function of any company including PE firms. Those are the resources who have proven track record in managing engineering and constructions and are fully aware of the industry best practices. They need to have track record in project management, contract administration and negotiation, project finance, risk and issue management and some understanding of engineering and construction projects. They also need to possess excellent personal skills particularly in communication, team building, motivation, stress management and problem solving. The project management team must lead their projects to ensure that they are getting the most of the project stakeholders.

Similar to the other business units of the PE firm, there should be a fully documented job description manual that not only details the different project deliver roles and their key responsibilities aligned with the project life stages, key relationships between the Project Manager and each of the appropriate project stakeholders, skills and Key Competencies aligned with the relevant project management knowledge areas, performance criteria among others. In addition, there should be periodical assessment of the performance of the PE Firm project management team to identify any performance improvement needs and readiness to grow their role and responsibilities.

Having the Right Project Delivery Processes

All business functions needed documented policies and procedures to ensure that all stakeholders and parties involved in delivering a project investment are performing their tasks in accordance to what the firm have adopted as their standard. The standard operating procedures for managing the project delivery should identify the project stages and associated stage gates along with the deliverables of each stage. In addition, the procedures should detail the different project management processes to be used along with the document templates and reports used to manage and report the performance of those processes. For each process, the workflow steps for submitting, reviewing, sharing and approving each project management process should be well documented. The procedures should also identify the key performance indicators that will be used to measure the performance of those processes.

Having the Right Technology Platform

The PE project management team needs to have an effective monitoring and evaluation solution to provide the insight to make better and faster informed decisions. This is possible when a Project Management Information Solution (PMIS) is implemented which will enforce project’s governance, transparency, accountability and traceability by automating the project management processes. This will ensure that the right data is captured by the right project team member using predefined input forms each has pre-defined workflow for submitting, reviewing, sharing and approving the relevant process.

Using a Project Management Information Solution (PMIS) like PMWeb will enable the PE Project Management Team and other organizations in the project to use a 100% web-enabled platform to capture all types of projects data. This could include cost estimate and budget, schedule, risk, issues, inspections, permits, contracts among many others. The online document template will also allow attaching all supportive documents and link to other relevant project records and emails. When this data is submitted, the pre-defined workflow steps will ensure that this data and associated documents are forwarded to the right project team members to review, share and approve.

The online document template that will be used to capture the needed project management process will include all the needed attributes to make it meaningful for the decision maker, regardless what type of decision he or she needs to make. For example, the document template shown below is for the contract agreement between the PE firm and the different organizations that have been contracted to deliver part of the project scope of work also known as bid packages. The document template has complete details of the contract along with all supportive documents, change orders regardless of their status, monthly progress invoices for completed works, actual payments made for invoiced work among others.

This formal data capturing will enforce not only the best practices of project management but will also enforce governance, transparency and accountability in getting this critical projects’ data. In addition, this will also ensure that the PE project management team have real-time single version of the truth on how their projects investments are performing. The data captured in the PMWeb PMIS using all of those document templates will become available for creating tabular and graphical reports to report on the performance trends for each project management process. The data from the different but related project management processes like for example budget, contracts, change orders and progress invoices can become part of a dashboard that provides the overall project financial status. The same could be done for risks and issues, the different type of project communications among others. Similarly, the same data source can be used to create a dashboard for the overall project’s status and performance or a dashboard for program of projects performance, projects portfolio performance or all of the PE firm projects. The most important thing to remember that all of those reports and dashboards are based on the same real-time data source. There will be no data silos to worry about or MS Excel templates to question if what is being reports is true or not.

Having the Right Project Management Office (PMO)

To ensure sustainability of successful projects delivery including hiring, developing and retaining the best qualified project management resources, ensuring the adoption and continuous improvement of standard operating procedures and maintaining a dynamic project management information system that ensures important projects data, information and knowledge is available when needed, a business unit needs to be created to take ownership of those assets. This unit is usually known as the Project Management Office (PMO).

The roles and responsibilities of the PMO could vary depending on what the Private Equity firms needs from this PMO. The PMO can play the role of supportive or center of excellence PMO, controlling PMO or directive PMO. The PE Firm can also create their own PMO by blending the different roles and responsibilities of those PMOs to come with the PMO that is best suited for their project investments delivery.

The High Cost of Project Failures

The challenges and changes happening in the real estate industry in the Middle East and Gulf Corporate Countries (GCC) can bring new and lucrative investment opportunities for Private Equity firms. Nevertheless, it is always known that high return on investment opportunities are usually associated with high risks of failure. Investing in projects is an example of those opportunities which as per the Project Management Institute (PMI) 2016 Pulse of the Profession report, organizations continue to have the high risk of losing more than 12% of their investments due to project failures. Project failure extends beyond the scope of any individual project. When project is late, over budget or when intended project goals are not fulfilled, disturbing demands are placed on project resources. This boils down to wasted money that your company may never get back.