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FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
FLP BPO educational viewpoint 2014
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FLP BPO educational viewpoint 2014

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Provides overview / educational guidance to real estate companies considering business process outsourcing (BPO)

Provides overview / educational guidance to real estate companies considering business process outsourcing (BPO)

Published in: Business, Economy & Finance
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  • 1. Implications of Business Process Outsourcing (BPO) for Real Estate Industry Participants Discussion Document Presented by FrontLine Partners (Updated First Quarter, 2014) 2014 www.frontlinepartners.net This document is confidential and is intended solely for the Initial BPO Educational Discussion Document and information of the party to whom it is addressed. use CONFIDENTIAL AND PROPRIETARY 1
  • 2. Table of Contents FrontLine Partners BPO Educational View Point (2014 Update) BPO Strategies and Usage – in General 3 BPO Implications at Large for the Real Estate Industry 12 Typical Business Case Elements and Value Proposition 17 Deploying BPO Strategies at the Industry Sector / Company Level (Applied Example of Real Estate Fund Management Sector) 24 Alternative Structure / Control Options Continuum 31 Next Steps 38 Appendix Items 40  General Qualifications of Managing Partner 41  Representative Case Studies 42 Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 2
  • 3. BPO Strategies and Usage in General Shared Service Center Organizational Structure & Design CONFIDENTIAL AND PROPRIETARY 3
  • 4. Introduction FrontLine Partners is engaging with its customers to talk about business processing outsourcing (BPO). Introduction Provide an Overview of the BPO Market and Share Our Views Engage in an Information Exchange that will Promote Education About the BPO Market Our purpose is to share our view of the BPO market, discuss its impact on the real estate market and explore means to move your company forward in the BPO market Understand Your Thoughts and Views About BPO Services and Their Place in Real Estate Initial BPO Educational Discussion Document Assist You in Determining the Right Way to Move Your Company Forward in Exploring the BPO Market CONFIDENTIAL AND PROPRIETARY 4
  • 5. The BPO Market and FrontLine Partners’ Response BPO is gaining traction in the real estate market. Over the next several years, these services will become an integral part of the way you do business. • BPO has a place in real estate businesses and over the next several years there will be a strong focus on the initiative. » Our clients are expressing a high interest in exploring BPO services. » If other market segments (e.g. financial services) are an indication, once companies see the benefits and understand the full extent of the capabilities, we will see a high rate of adoption. • As the real estate market continues to change, our clients will embrace BPO as a way to meet the challenges that dynamic markets present. » Market pressures are always pushing companies to do more with less. » BPO allows companies to secure good talent and scale (up or down) when needed. • FrontLine Partners is responding to the market’s demand for BPO services by leading its customers through an education and examination process to look at BPO services and determine how to integrate them into current business strategies. » FrontLine Partners is providing its clients with an understanding of what BPO is and what it means for their business. Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 5
  • 6. Key Business Drivers for BPO Companies are adopting BPO because it enables them to create an organization that is more focused, scalable, and capable of delivering to a higher standard. Key Market Drivers for BPO Fortune 500 companies were asked what most impacted their decision to outsource Improve Quality 10% “Improve corporate capabilities” 20% Scalability “Replicate the process” 35% Focus on Core Competency “Do What we Do Best” 35% Cost Reduction “Spend Less Get More” Source: Forester, IDC Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 6
  • 7. Key Trends U.S. companies are not just off-shoring low-value functions, but are starting to look at ways to off-shore other types of work. Key Market Trends » BPO is gaining visibility in U.S. companies over the last five to eight years. - Many U.S. companies are under pressure to lower costs and improve performance. Many companies see BPO as a way to fix both problems at the same time. » The BPO market is now experiencing noticeable momentum in terms of wider user acceptance and the emergence of new service offering categories, as well as a proliferation of providers. - Service providers offer BPO for literally hundreds of business processes that cover most market needs. Some of these service offerings are very stable; some are just emerging and are, therefore, largely untested. » Historically, BPO market growth has come from corporations off-shoring low value-add functions but today the market is shifting to offer higher value-add BPO capabilities. - SOX compliance and other niche accounting/financial reporting requirements have lead to off-shoring of higher value functions. » Real estate companies have started to take advantage of BPO services and have realized capital savings for their organization/shareholders. - As market pressures gain strengthen in the real estate market companies will begin looking at cost cutting and ways to save money without impacting their organizations, BPO is a solution that should be examined. Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 7
  • 8. Shifting to an Extended Enterprise Model Reinforces Value Add The extended enterprise model / concept promotes primary focus on core competencies and critical functions and a move away from less value added functions Extended Enterprise Model Vertical Integration Model • Enhance operating and management effectiveness by focusing on core competencies Core Competencies Critical Functions • Increase flexibility to meet changing business needs • Reduce cost structure by leveraging providers’ expertise, technologies and scale Outsourced Functions Why outsource? Initial BPO Educational Discussion Document Key Attributes Why not outsource? CONFIDENTIAL AND PROPRIETARY 8
  • 9. BPO – Can Drive Operating Strategy in Multiple Environments Outsourcing creates operating strategy leverage in every environment. Potential Operating Goals Under Various Performance Scenarios Possible Outsourcing Strategies Description • Find options with lower cost Arbitrage Direct Cost Structures HIGH fundamentals, e.g. labor rates in India • Leverage larger suppliers to handle volumes Increase Capacity • Key is reducing operating risk, Short List of Trusted Suppliers Growth Reduce Unit Costs e.g. quality • Build smooth interfaces to reduce interruptions Reduce Total Costs Large, Innovative Contracts Variabilize Costs • Shift fix cost risk to supplier • Structure and execution critical • Expand outsourcing scope to LOW HIGH Large “Package” Deals Profitability Initial BPO Educational Discussion Document ensure reductions in indirect and fixed costs • Comprehensive and highly structured arrangements CONFIDENTIAL AND PROPRIETARY 9
  • 10. Sourcing / Outsourcing Strategy Company sourcing strategies should have a component of outsourcing (BPO). Building the Right Outsourcing Strategy » Companies need to examine their back-office to build a sourcing strategy that is right for them. - Businesses choose to use outside vendors everyday as part of a sourcing strategy. Outsourcing does not have to be off-shoring, but rather it could be a different way of doing things inside your business. » The feasibility for executing a sourcing strategy is different for companies. - All companies have a sourcing strategy, whether it is an in-house (own employees) or it is hiring contractors/temps it is a sourcing strategy. BPO requires companies to look at additional sourcing dimensions. » When most companies think of outsourcing, they look to act quickly because business drivers require an adjustment. - Our approach is to work with our clients before this “crisis” happens to build a process that will enable analysis of work processes, selection of prime outsourced functions, and a strategy (timing, effort) that will set the stage for effective migration and delivery of BPO services. Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 10
  • 11. BPO Misconceptions and Typical Barriers to Usage Considering outsourcing will challenge your preconceived thoughts about BPO, getting the facts will help sharpen your strategic direction. Outsourcing Misconceptions » Loss of Business Control - While 100 % outsourcing is not feasible, a blend of in-house and outsourcing capabilities creates a balanced company. - Processes structured for collaboration creates an outsourcing situation that puts the customer in charge of direction and delivery expectations. » Degradation of Service - Each BPO deal brings different value to the customer. - Dedicated team for each client delivers focused value and the right mix of outsourced capabilities. » Customer Relationships Adversely Affected - Companies that outsource enable their organization to focus on what it knows – the customer, while outsourcing activities that require less skill. - Deploying resources into core business activities enables companies to deliver more value to its customers. Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 11
  • 12. BPO Implications at Large for the Real Estate Industry Shared Service Center Organizational Structure & Design CONFIDENTIAL AND PROPRIETARY 12
  • 13. Real Estate Firms and the BPO Market The Real Estate Industry as a whole is not an early adopter of BPO services, but is quickly learning of its value Real Estate Firms and the BPO Market Overview BPO is a real possibility for real estate companies - A number of owner operators, REITs and fund managers are bringing BPO into their businesses. - A key area of focus of real estate companies for BPO is transactional support, lease administration and increasingly accounting and financial reporting. Real Estate companies are looking at BPO, but are not an early adopter - Real estate companies that have tried BPO services are looking for ways to expand. - Select real estate companies are looking at building captive BPO capabilities or shared service centers. Real estate companies seeking hard to find talent are looking to BPO as a solution - BPO providers are responsible for managing turn-over and training new people. - BPO providers find and attract new talent and pay off-shore competitive rates. Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 13
  • 14. Real Estate Market Segmentation Six key market segments define the real estate industry Real Estate Market Segmentation Re-Devel/ Development Construction Leasing Legal Tenant Coordination and Improvement Property Mgmt/ Facility Mgmt Lease Admin Accounting/ Reporting Risk Mgmt/ Insurance Investor Relations Asset Mgmt/ Funding/ Servicing Markets Home Building Development/ Construction Owner/ Operators Property Services Capital Markets Corporate Real Estate Homebuilders Master Plan Communities Office Property Management Opportunity Funds Retail Users Multi-Family Housing Senior Housing Student Housing Military Housing Land Development Commercial Construction Multi-Family Construction Retail Lenders / Banks Large Block Industrial Facility Management Loan Servicers Industrial Hospitality Energy I-Banks Health Healthcare Telco Insurance Higher Education Mixed Use Brokerage Pension Funds Government Specialty Initial BPO Educational Discussion Document Land Owners CONFIDENTIAL AND PROPRIETARY 14
  • 15. Real Estate Segment Market Assessment Each market segment has its own specific approach and challenges; however, we see the biggest opportunity in the owner operator and capital markets segments. Real Estate Segment Market Assessment Key Opportunities Market Segment Key Challenges Market Assessment Owner Operator - Large Scale Potential - Management Focus on Scalability / Flexibility - Resource Challenges - Competitors after same Market - Slow Adopters - Big Market Potential - Adoption / Model Shift to Funds Management Capital Markets - Money is Available - Operations and Systems Not Keeping Pace - Infrastructure and Resource Challenged - Breadth of Market in Size and Scope - Prioritizing Key Pain Points - Desire for Customization - Big Market Potential - Focus on Investor and Fund Reporting/Admin - Secondary Expansion of Financial Analytics - Leverage Large Service Providers to get Scale - Focus on sub-components of Third Party Outsourcing - Cost Center Mentality; Indirect Spend / Impact - Focused Effort on Large CRE providers first - Secondary Priority for Direct CRE clients Corporate Real Estate Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 15
  • 16. Real Estate Industry Overview of Operations Activity Chain FrontLine Partners has identified certain primary and secondary opportunities for outsourcing across the entire industry, although individual firms / sectors will vary significantly Real Estate Industry Overview of Operations Activity Chain Redevelopment /Development • • • • • Identify • potential projects • Pro-Forma model • potential • project Secure funds• for project Monitor project progress Monitor project IRR Construction Detail project budgeting Construction Mgmt Gov’t permitting Subcontractor Mgmt Construction Progress Reporting Leasing • • • • • • • Property ROI and leasing projections Prop. Availability Report Mrkting/Pros pecting Tenant Opportunitie s Identified Lease Negotiations Reporting Property Plan Design (CAD Tenant Coordination Legal • • • • Legal Review Lease Negotiations Lease Approvals Lease Abstracts • • • Legal Review Lease Neg. Lease Approval Lease Abstracts Tenant Improvement • • • • • • • • • Site Design TI Budget Bid Request Contract Award Const. Schedule Mgmt Acceptance of Premise Contractor Eval Tenant Space Delivery Reporting • • • • • • • Lease Administration Lease Setup/Mgmt Tenant Rec. Billings Recoveries (CAM, Tax, Insurance) Lease Renewals Collections CAM Audits Reporting • • • • • • • Prop Mgmt/ Facility Mgmt Monthly physical inspect Vendor contracts – scheduled services Tenant Move In/Move Outs Site repair, Maintenance/ facilities mgmt Prop & Portfolio Reporting Property Budgeting Procurement • • • • • • • • • • • • • • Accounting/ Reporting Accts receivable • process Accts payable process • Asset mgmt Periodic journal• entries • Corp budgeting Bank reconciliation Fixed assets mgmt JV accounting Consolidations Property accounting Reporting -Integrity -Month End -Financial Risk Mgmt/ Insurance Investor Relations • Section 404 compl. Claims • mgmt Insurance Coverage • plan • Create External communicati • ons Manage • external investors Create • company marketing materials Manage Wall St. Analysts Create / post press releases • • Asset Mgmt Funding Manage the asset Position the asset for growth Acquisition (buying and selling) Service the Debt Primary areas for outsourcing Secondary areas for outsourcing Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 16
  • 17. Typical Business Case Elements and Value Proposition Shared Service Center Organizational Structure & Design CONFIDENTIAL AND PROPRIETARY 17
  • 18. Real Estate BPO Providers Value Proposition Market dynamics along with the constant challengers of maintaining a competitive advantage continue to strengthen the “BPO Option”. Issues » Pain Points » Retention challenges for qualified and motivated workforce (tenured) » Cycle times for billing, frequency, data collection » » » » » Scalability and flexibility (acquisition growth) » Operational inefficiency plus slow cycle time creates: Compliance / SOX related issues (cost of compliance) » Lost revenue opportunities Poor quality Poor reliability Reporting delays Operational distraction takes focus away from growth generating transaction/activities Benefits » Operational relief to focus on value added functions » Scalability (Acquisition Growth) » Fixed cost to a variable cost (“Certainty around transaction costs”) » Risk Mitigation » Evolve business model with industry leading practices and technology » Access to global workforce » Highly educated » Stable » Reliable » Flexible (7 x 24) » Faster collection of revenue Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 18
  • 19. Typical Indicators that Outsourcing may be Attractive Option We know selected responses to these key questions are critical decision factors / drivers in deciding to engage BPO providers and to estimate the financial and operational impact from BPO strategies 1. If we could save you 35 to 45% on your internal financial and related processes and improve consistency and quality without increasing your risks, would you be interested? 2. What processes are your current challenges in your operational, or financial environment? 3. What are your paper and labor intensive processes – real estate, HR, financial and accounting processes? 4. What headcount do those processes have? 5. Do you currently partner with any third parties to process those transactions? If so, which processes? Do you have established SLA’s? 6. Would you consider partnering with a firm that has core competencies in those processes? 7. What are your key success criteria (the 5, or 6 measurable results that will demonstrate long term success)? Do you see the opportunity for strategic advantage in improving the process? Are they thinking about whole processes? Are they limiting their thinking to low level activities? Would they benefit from a total solution? 8. What are their decision criteria for choosing the services provider? 9. Who are the key decision influencers? Internal customers for the service? Decision makers? 10. What will be the process for making the decision? 11. Is the customer willing to do a pilot? Do they have the processes designed? 12. How would you characterize your organizations’ risk sensitivity – are you trying to reduce risk? 13. Is your company highly acquisitive? (outsourcing to reduce cost in integrating companies) Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 19
  • 20. BPO Case for Action CUMULATIVECOST Break-even typically occurs after a short ramp-up and transition period. Project breakeven during Month 6 1 2 3 4 Initial BPO Educational Discussion Document 5 Reduction in annualized operating expense typically 39% 6 7 8 9 CONFIDENTIAL AND PROPRIETARY 10 11 12 13 TIME 20
  • 21. Illustrative Business Case Analysis FrontLine Partners can develop a customized business case analysis BENEFITS & REVENUES Hard Benefits/Savings Soft Benefits » Cost savings from lower cost offshore labor » Greater pull through and response rates from » Improved scalability and flexibility of operational model » Variable cost structure (transaction pricing versus imbedded fixed costs) » Improved risk mitigation » Preserve capital for strategic uses improved cycle time » Improve and monitor quality » Process improvements (Technology & Productivity) COSTS & EXPENSES Hard Costs » One time/Non-recurring • RIF/Severance • Consultants, legal contracting • System and technology connectivity • Facilities/Equipment (if significant RIF) » Recurring • Supplier management and oversight • Future step-up in labor costs Soft Costs » Increased management time / attention during initial ramp-up and monitoring phase TYPICAL BOTTOM LINE BUSINESS CASE ATTRIBUTES • • 20-30% + labor and infrastructure cost savings 15-20% process improvements from quality and productivity • Payback typically six to nine months depending on scope / ramp-up Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 21
  • 22. BPO Business Case Evolution VALUE Firms typically will see an initial mix of labor cost arbitrage and process improvements which impact short to near term impact. Over time, the firms should experience greater strategic competitive advantages as their employees are focusing on more critical, value-added activities and less “drag”. STRATEGIC COMPETITIVE ADVANTAGE Freedom to focus on your core competencies and achieve competitive advantage PROCESS IMPROVEMENTS COST REDUCTION 15-20%+ increase in productivity and quality improvements 20-30%+ reduction in labor and infrastructure costs DRIVERS BPO Project • • • • Test pilot Prove concept Maintain quality Initial cost savings through arbitrage Initial BPO Educational Discussion Document • Process improvement using Six Sigma methodology • Technology optimization/leverage • Process re-engineering CONFIDENTIAL AND PROPRIETARY TIME 22
  • 23. Transition Challenges Implementing BPO solutions cause challenges in four key areas for most customers. Scope Complexity Processes, systems, and people across the entire organization change simultaneously. Many unknowns exist. The entire organization is impacted. Critical details are hard to gather. People take on new roles and new working relationships. Initial BPO Educational Discussion Document Risks Risks are inherent. Pressure for results forces compromise. People issues can be overwhelming. CONFIDENTIAL AND PROPRIETARY Momentum BPO transitions and transformation take on a life of their own. Management may struggle to maintain control. 23
  • 24. Deploying BPO Strategies at the Industry Sector / Company Level Shared Service Center Organizational Structure & Design CONFIDENTIAL AND PROPRIETARY 24
  • 25. Process Consideration for External / BPO Service Delivery To complete an initial business and process baseline view, we would recommend applying a number of filters to consider select processes for migration or delivery by external / BPO providers Business and Process Baseline Views Filter Outcome Industry Knowledge Key insights And recommendations For migration path And degree of internal vs. External resources Fund Variability & Complexity Fund / Investment Mgmt. Process Process & Technology Readiness Outsourcing Candidate Screens Overall Staging and Prioritization Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 25
  • 26. Outsourcing Transition Evaluation Framework We typically help clients assess potential processes for outsourcing depending on criticality to the business, core vs. non-core, as well as internal process readiness and resource capacity CORE Any activity that contributes to client’s competitive advantage MISSION CRITICAL Any activity that, if performed poorly, would pose an immediate risk to client • • • • • Any activity that does not contribute to client’s competitive advantage IN HOUSE (FOCUS AND GROW) Retain complete control Engage and control Client personnel Continue in house Our way, our standards OUT-TASK AND TRANSITION • • • • • OUT-TASK AND REVIEW NON-MISSION CRITICAL Any activity that, if performed poorly, would not pose an immediate risk to client NON-CORE • • • • • Maintain process control Engage and entrust Specialist partners Focused investment Our way, your standards Maintain outcome control Disengage and control Strategic partners Drive productivity Your way, our standards OUTSOURCE • • • • • EARLY VISIBILITY INTO RISKS Initial segmentation improves subsequent screening efforts; identifying required control level helps to focus additional suitability analysis on the most important risk criteria. Give up control Disengage and entrust Vendors Leverage and contract Your way, your standards MORE IN THE CORE Not all core activities are “off limits” for outsourcing; an initial risk screen can uncover suitable core activities given an appropriate level of control. Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 26
  • 27. Real Estate Fund Management Value Chain – Applied Example Our initial assessment suggests that select parts of portfolio management and finance, investment management and fund administration be considered for back office / BPO solutions Operational Infrastructure Support Fund Management Value Chain Investment Strategy/ Market Research » » Key Processes » » Strategy Formation Data collection, storage and integration Compilation / interpretation of analysis Aggregation / distribution of analytics output » » » » Acquisition and Dispositions Capital/ Fund Formation Investor/ partner acquisition Fund Formation Partnership structures Relationship management » » » » » » Deal sourcing Market analysis Due diligence Underwriting Buy – Sell – Hold analysis Disposition marketing » » » » » » » Key Cost Drivers • Purchase of external data • Size of in-house research team • Number of clients, funds and structures • Size of capital investment • Number of transactions • Complexity of investment / type and variety of asset types • Portfolio turnover Property Management Tenant services delivery Tenant relationship Management Lease Administration Vendor Management Facilities Management Billing and Collections Invoice Management • Number of portfolios • Number of investors • Leverage of operating partners Portfolio Management and Finance Property Accounting » » » » » » Budget / forecasting A/R billing and collections A/P / purchasing Financial reporting Closing » » » » • Number of properties • Portfolio roll-ups • Degree of leverage by operating partners Business plan management Performance monitoring and reporting Debt management Fund tracking Return/cash flow calculations • Number of portfolios • Complexity and variability of underlying investments • Tiering of Funds Degree of Inclusion Indicates primary segments for BPO solutions Initial BPO Educational Discussion Document Low Probability CONFIDENTIAL AND PROPRIETARY » » » » » » Investment Mgmt.; Asset Servicing Investment management Investor or joint venture reporting Investor communications Industry compliance Maximizing returns Capital planning and deployment • Number and complexity of investor requirements • Fund vs. programmatic vs. separate account Med. Probability Fund Administration » » » » Fund accounting Statement generation Fund statutory and regulatory reporting Cash inflow/ ouflow record keeping • Number of portfolios / funds / partnerships • Variability in capital call and funding needs High Probability 27
  • 28. Real Estate Fund Management – Functional ‘Environment’ Investment Selection » » » » » » » »  Sourcing Market Research Deal Review Feasibility Analysis Underwriting Cash Flow Sourcing to Fund LOI / MOU Deal Package Prep Investment Approval (Preliminary)  Post Acquisition » Deal Structuring » Entity Structuring » Asset Mgmt. Agreement » Engage Svc. Providers » Document Turnover » Asset Takeover » Data Conversion » Asset Mgt. Handoff Fund Management  Acquisition Full Due Diligence Financing Market Appraisals Purchase/Sale Agreement » Investment Approval Final » Closing  Strategic Research /  Fund Setup » Macro Research » Regional Research » Country Research » Product Research  » Fund Strategy Dev. » New Fund Approval » New Fund Launch » » » » » » » »  Dispositions Hold / Sell Analysis Bid / Deal Structuring Disposition Approval Wind Down Asset Management Investment Administration  » Investor Relations » Investor Communications » Investor Reporting Fee Establishment » Asset Mgt. Fees » Performance Fees » Development Fees Investor Marketing/ Communications » Investor Targeting » Fund Road Show » Investor Recruitment » Investor On-boarding » Event Management » Marketing Mgmt. » Investor Queries » Fund Cross Selling Fund /Portfolio Administration & Reporting  Fund Accounting  » Fund Structuring » Fund Accounts Setup » SPV Accounting » Hold Co Accounting » Cash Position Tracking » Capital Call Calc. » NAV Calculations » Fee Calculations » Monthly Closing » Hedge Accounting Fund Administration  » Entity Setup » Capital Call Statement » Capital Acct. Tracking » Tax Compliance » Safe-Keeping » Trustee & Fiduciary Supervision » Entity Wind Down  Asset Management » Business Plan Mgmt. » Performance Monitoring  Property Valuation » Provider Selection » Data Setup/Validation » Assumption Validation • Capital Expense • Income • Market • Global » Property Valuation » Annual Valuation Portfolio/Fund Reporting » Monthly Actuals » Asset Mgmt. Report » Quarterly Fund Report » Return/Cash Flow Analysis » Property Performance and Metrics Evaluation  Finance » Capital Planning » Capital Development » Cash Flow Mgmt. » Cash Forecasting  Debt/Equity Mgmt. » Debt Management » Equity Management » Debt/Equity Reports  What-If Analysis » Assumption Definition & Refinement » Portfolio/Fund What-If Analysis Asset Data Aggregation  Data Governance » Data Standard Definition & Maintenance • Properties, Spaces • Tenants, Leases, Charges • Operating & Capital Expenses • Budgets/Forecasts  Data Refinement  Data Movement & Storage » Data Adjustments (within limits) » Communications (w/ Data Sources & Consumers) » Oversight of Inbound & Outbound Data Fidelity KEY: Fund Manager Client Functions Asset Controlling & Reporting Fund / Portfolio Admin & Reporting Data Aggregation / Mgmt.  Property Reporting » Financial Reporting » Ops Reporting » Capital Projects Reporting Potential Additional Real Estate Functions  Asset Accounting » GAAP Translations » GAAP Adjustments » Ownership/ / Partnership Entries » Tax Entries » Accruals & Allocations » FX Conversions » Other Non-Cash Adjustments » Month-End Close  JV Accounting Oversight / Interface » Financial Reporting Review » Ops Reporting Review Property Svc. Provider Functions Property Operations, Accounting & Budgeting  Property Budgeting  Property Accounting » Rent Roll Setup » CAM Reconciliation » Income & Exp. » Property Accruals Assumptions » Capital Expenditures » Op Expense Budgeting » Bank Reconciliations » Cap Expense Budgeting » Budget Approval  Billing & Collections » Lease Administration » Billing Setup » Monthly Billing » A/R & Collections Tracking Initial BPO Educational Discussion Document  Accounts Payable  Property / Building Mgmt. » Vendor Setup » Property Management » Invoice Management » Facilities Management » Check Generation  Leasing » Market/Business Dev » Leases Execution » Lease Renewals » Lease Forecasting CONFIDENTIAL AND PROPRIETARY  Capital Projects / Development Mgmt. » Design » Bidding & Contracting » Project Management » Construction Accounting & Rptg. 28
  • 29. REAL / Back-Office Solutions Process Selection for Inclusion in BPO ESTATE INVESTMENT MAAGEMENT – FUNCTIONAL ‘ENVIRONMENT’ To begin our initial assessment, we’ve highlighted in red, those functions that would be candidates for further screening / analysis Investment Selection  Sourcing • Market Research • Deal Review • Feasibility Analysis • Underwriting Cash Flow • Sourcing to Fund • LOI / MOU • Deal Package Prep • Investment Approval (Preliminary)  Acquisition • Full Due Diligence, Financing • Market Appraisals • Purchase/Sale Agreement • Investment Approval Final • Closing  Post Acquisition • Deal Structuring • Entity Structuring • Asset Mgmt. Agreement • Engage Svc. Providers • Document Turnover • Asset Takeover • Data Conversion • Asset Mgt. Handoff  Dispositions • Hold / Sell Analysis • Bid / Deal Structuring • Disposition Approval • Wind Down Fund Management  Investor Marketing/ Communications • Investor Targeting • Fund Road Show • Investor Recruitment • Investor On-boarding • Event Management • Marketing Mgmt. • Investor Queries • Fund Cross Selling  Strategic Research/ Fund Setup • Macro Research • Regional Research • Country Research • Product Research • Fund Strategy Dev. • New Fund Approval • New Fund Launch  Investor Relations • Investor Communications • Investor Reporting  Fee Establishment • Asset Mgt. Fees • Performance Fees • Development Fees Initial BPO Educational Discussion Document Fund /Portfolio Administration & Reporting  Fund Accounting • Fund Structuring • Fund Accounts Setup • SPV Accounting • Hold Co Accounting • Cash Position Tracking • Capital Call Calc. • NAV Calculations • Fee Calculations • Monthly Closing • Hedge Accounting  Fund Administration • Entity Setup • Capital Call Statement • Capital Acct. Tracking • Tax Compliance • Safe-Keeping • Trustee & Fiduciary Supervision • Entity Wind Down  Portfolio/Fund Reporting • Monthly Actuals • Asset Mgmt. Report • Quarterly Fund Report • Return/Cash Flow Analysis • Property Performance and Metrics Evaluation CONFIDENTIAL AND PROPRIETARY Asset Management  Asset Management • Business Plan Mgmt. • Performance Monitoring  Property Valuation • Provider Selection • Data Setup/Validation • Assumption Validation • Capital Expense • Income • Market • Global • Property Valuation • Annual Valuation  Finance • Capital Planning • Capital Development • Cash Flow Mgmt. • Cash Forecasting  Debt/Equity Mgmt. • Debt Management • Equity Management • Debt/Equity Reports  What-If Analysis • Assumption Definition & Refinement • Portfolio/Fund What-If Analysis 29
  • 30. REAL ESTATE INVESTMENT MANAGEMENT – Process Selection for Inclusion in BPO / Back-Office Solutions FUNCTIONAL ‘ENVIRONMENT’ To begin our initial assessment, we’ve highlighted in red, those functions that would be candidates for further screening / analysis. Asset Controlling & Reporting KEY: Data Aggregation / Management  Property Reporting • Financial Reporting • Ops Reporting • Capital Projects Reporting Fund Manager Functions Fund / Portfolio Admin & Reporting Data Aggregation / Mgmt. Potential Additional Real Estate Functions Property Svc. Provider Functions  Data Governance • Data Standard Definition & Maintenance • Properties, Spaces • Tenants, Leases, Charges • Operating & Capital Expenses • Budgets/Forecasts  Asset Accounting • GAAP Translations • GAAP Adjustments • Ownership/ Partnership Entries • Tax Entries  Data Movement & Storage • Communications (w/ Data Sources & Consumers) • Oversight of Inbound & Outbound Data Fidelity  Accruals & Allocations • FX Conversions • Other Non-Cash Adjustments • Month-end Close  Data Refinement • Data Adjustments (within limits)  JV Accounting Oversight / Interface • Financial Reporting Review • Ops Reporting Review Property Operations, Accounting & Budgeting Property Accounting Billing & Collections • CAM Reconciliation • Lease Administration • Property Accruals • Billing Setup • Op Expense Budgeting • Capital Expenditures • Monthly Billing • Cap Expense Budgeting • Bank Reconciliations Property Budgeting • Rent Roll Setup • Income & Exp. Assumptions • A/R & Collections Tracking Accounts Payable • Vendor Setup • Invoice Management • Check Generation Property / Building Mgmt. Leasing Capital Projects/ Development Mgmt. • Property Management • Market/ Business Dev • Design • Facilities Management • Leases Execution • Project Management • Lease Renewals • Bidding & Contracting • Construction Accounting & reporting • Lease Forecasting • Budget Approval Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 30
  • 31. Control / Ownership Continuum of Alternative Options Shared Service Center Organizational Structure & Design CONFIDENTIAL AND PROPRIETARY 31
  • 32. Six representative structures can be used to give control beyond that of a traditional supplier contract Operating Control • Supplier-Based Contract (Typical Vendor or Short Term Contract) • Strategic Supplier Relationship • Strategic Alliance or Joint Venture (either with an Indian or US based BPO partner) • Company partners with another entity without structuring any common or shared entity / ownership. Instead, firms commit resources, management and possibly funding. In some cases, a JV could involve a (majority-minority) equity interest in a separate entity, created to facilitate the partnership (See Minority / Majority interest below). Company would likely commit volumes in exchange for significant influence over processes and/ or pricing. • Build-Operate-Transfer • Company contracts with another entity to design, build and operate a BPO center. Company can influence the design / operating specifications to whatever degree desired. Company has the sole discretionary option to purchase the facility (including transfer of associates) at a pre-determined price and under pre-determined conditions. At transfer, ownership / equity similar to Build-Out. Could be considered as part of consortium. • Equity Minority Investment (i.e. minority investment) • Company provides equity or deeply subordinated financing in exchange for entity guidance and key leverage over operational decisions/directions, etc. Likely to receive board membership, veto rights, etc. Potential upside. • Controlling Majority Equity Interest (i.e. at least 50.1% ownership) • Company invests sufficient capital to receive controlling interest in the decisions of the operating platform, but will need to manage other investor / client-related entity concerns. • De Novo Build-Out (On and Offshore) • Company commits financial and personnel resources to design, finance, build and operate a new BPO center as separate entity. Execution options exist including leased or purchased property and the use of sub-contracting various elements of the design, build-out and operations. Leadership may be ex-patriot or local. • Extent of Equity Ownership Acquisition (entity preferred over asset purchase) • Company purchases an Indian or US based BPO. Purchase would likely include all assets, physical and personnel, as well as all liabilities and existing business contracts. 32 Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 32
  • 33. Control trade-offs under more complex BPO alternatives These control structures can also be used to evaluate key business and operational considerations Strategic Supplier Long-Term Viability of Supplier / Partner BOT Equity Stake (Minority) Equity Stake (Majority) De-Novo Build Acquire Supplier Mgmt. / Industry Expertise Quality of Service to Company Ally or JV Process Expertise / Methodology Operational Reliability Supplier Stability / Reputation Speed of obtaining capacity Scalability & Flexibility For Company Influence / Control over process Flexibility to exit Ownership “optionality” People & Cultural Fit for Company Company culture / process fit Mgmt. / Employees Retention Economics & Investment For Company Control costs Defray Company investments Favorable Depends on Situation Neutral / Not favorable Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 33
  • 34. Benefit-risk assessment based on an increasing level of control/ownership Strategic Supplier (Enhanced relationship, not a vendor approach) Anticipated Benefits Anticipated Risks • Lower execution costs and faster time to cost reduction • Leverage process migration discipline • Economies of scale/efficiencies from others platform/experiences • Greater flexibility to scale up/down or exit • May exchange volume commitments for partial control features • Significance of the customer relationship / attention as BPO’s evolve / mature • Tension over BPO for recurring work vs. special project needs • Supplier distractions / focus on their own leads / exit options • Hybrid model effectiveness in question at early stage until enough depth of work or relationship Strategic Alliance or Joint Venture Build-Operate-Transfer (BOT) (various funding and payment options) (with a BPO partner) • Company able to contribute financing, volumes and process knowledge • Many players receptive to this type of arrangement • Lower execution costs and time frames • Greater control in process design • Nominal funding • Control marginally higher than cultivating a strong supplier relationship • Volume “lock-up” may limit flexibility • Lack of successful beacons--JV relationships appears to be “high maintenance” • Lower initial execution costs and accelerated time frames • Deferred capital investment • Significant control on design/process • Limited Company resources/oversight • Option to own, timing is entirely Company call and based upon defined criteria • Possible control on recruitment • Potential premium paid for entity and management team (take-out) • Transfer may have challenges similar to an acquisition • If partnership does not work out, transition agreement may be problematic • Partner may lose focus/ commitment to Company near transition point Most likely, these choices are the stronger options available to Company for this objective. 34 Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 34
  • 35. Benefit-risk assessment based on increasing level of control/ownership (cont.) Equity Investment (Minority Interest) Anticipated Benefits Anticipated Risks Equity Investment (Majority Interest) • Greater operational influence • Relatively low investment from Company • Ability to spread out capital contribution risk • Accelerated time to market • Ability to increase ownership, if desired • Significant capability to leverage operational control • Ability to manage capacity with respect to other client or institutional partner volumes • Potential to fully capture enterprise economic value (to extent of ownership interest %) • Control could be restricted to select operational areas • May be difficult to unwind investment/ subject to taxes • Investments may be used to grow future clients and dilute Company operational focus • May compromise ability to achieve cost pass through to investors (critical threshold % for investors?) • Likely erodes any meaningful chance to achieve cost pass through (unless consortium) • Large capital requirements • Concentration risk of captive business • Issues with management of entity growth • Exit strategy may have liquidity constraints We can find companies willing to play in all of these spaces. However, the strongest players are typically less “flexible” with their deals. Company needs to decide priority of control / effectiveness vs. desire to achieve BPO benefits without entity control. 35 Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 35
  • 36. Benefit-risk assessment based on increasing level of control/ownership (cont.) De-novo Build-Out (on-shore / off-shore) Anticipated Benefits Anticipated Risks Acquisition • May accelerate timelines and capacity availability • Existing operating platform • Possibly gain deep business and management experience • Strong design control • Re-badging potential is possible to start / launch effort • Strong integration/ alignment with Company from the start in terms of people and processes • Ability to hire resources in India, controlling for Company-specific business needs • Possibility of over-design, leading to high-cost structure • Longest timeframe for execution • High up-front financial exposure • Intense Company resource and management focus • Lack of deep in-country expertise • Limited number of opportunities • Very significant up-front financial exposure • Will likely pay premium • Integration (cultural, processes, infrastructure) may be difficult • Cannot control design elements-what you see is what you get • Intense Company resource and mgmt. focus, not core business De-novo build out and acquisitions are less likely options as they would represent a sizeable commitment to the industry BPO opportunity, when priority may simply be at the Company needs level. 36 Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 36
  • 37. First Stage Assessment for BPO Utilization / Control Options Ownership/Control Option • Strategic Supplier • Build-Operate Transfer (B.O.T.) Rationale • Preferred option for managing cost / scalability / flexibility while limiting capital and management attention. Exchange volume for control over pool of dedicated staff. Desire industry / specific areas of BPO experience. • Attractive option from perspective of third party firm, expense pass through. Ownership optionality to be researched further. Most become B.O. (no transfer). • Strategic Alliance or Joint Venture (either with an Indian or US based BPO partner – but NO EQUITY) • Next best option to strategic supplier, and prior to a B.O.T. level of commitment (allow provider to prove out capabilities / scale for you). • Minority Equity Investment • Expensive, risky, and inflexible. Recommend only if it makes sense in connection with emerging platform well suited for Company / industry. • Majority Equity Interest • Pass for now. Monitor market and evaluate opportunities as needed. Company not likely in a position to commit management time and equity to venture. • De Novo Build-Out (On and Off-shore) • Not recommended; time delays; economic capture via BPO management not core focus. Company would have this issue with internal build-out in US. • Acquisition Initial BPO Educational Discussion Document • Not now. Watch market for opportunities as critical mass and confidence heightened. CONFIDENTIAL AND PROPRIETARY 37
  • 38. Next Steps Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 38
  • 39. Next Steps FrontLine Partners recommends Company take steps to retain FrontLine for assistance with its business process outsourcing strategy and migration. 1 FrontLine Partners will provide any necessary additional information to help Company arrive at a decision 2 FrontLine Partners and Company will jointly discuss the scope and nature of our role in the business process outsourcing strategy formation and evaluation / migration process 3 FrontLine Partners will work with Company to outline the key deliverables and project milestones Please contact for additional information: Jim Vincent Managing Partner FrontLine Partners jim.vincent@frontlinepartners.net (214) 369-2085 4 FrontLine Partners will present a proposal for your review and discussion 5 FrontLine Partners will assemble / launch the team once engagement terms are agreed to Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 39
  • 40. Appendix Items QUALIFICATIONS / CASE STUDIES Project Framework and Timeline Project Methodology and Approach Key Document Section Description Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 40
  • 41. Managing Partner Bio – BPO and Organizational Improvement Jim Vincent: Jim has over 30 years in significant business leadership positions with some of the industry’s leading real estate financiers and financial service firms. Throughout his career, Jim has built multi-million dollar growth platforms, repositioned businesses and achieved significant cost savings at Fortune 500 industry leaders including GE Capital, Capital One Financial and Bank of New York. Significant positions include: SVP / Managing Director and founder of GE Capital Real Estate Capital Markets group, and President of BNY Asset Solutions. Specific highlights in connection with operational reorganizations, process improvement and BPO: • • • • • • • Supported a top ten real estate fund manager with strategic and business model options / feasibility assessment to create a shared service center to consolidate back office operations. Additionally conducted outreach and RFI evaluation of proposals from over 15 firms, evaluated and made recommendations on final round participants. Sourced and managed a three phase consulting assignment for a medium sized real estate fund manager. Work consisted of conducting a current / future state gap analysis on business operating model (including outsourcing), to arrive at the technology and business operations road map and implementation plan. Conducted significant market research on real estate fund manager back office operational issues and challenges for an Indian based (de-novo) outsourcing group looking to enter the market – suggesting high market need for more effective BPO / integrated software solutions in the real estate fund administration arena. Assisted top 20 real estate fund manager with core process review across entire span of operations to identify key system and process improvement recommendations. Advised top ten retail REIT (NewPlan) on BPO strategies, including supplier through building a captive operational center, for migrating over 100 retail accounting jobs off-shore to a dedicated real estate BPO firm. Running the Capital One Contract Finance team (along with two other business groups) as part of Supply Chain Management Group. Team delivered over $200MM in annual savings – principally through supplier evaluation and contracts with outsourcing. Running and turning around the Bank of New York Asset Solutions subsidiary, a $16B loan and asset servicing platform, with six lines of business and over 90 institutional accounts. Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 41
  • 42. FrontLine Partners Case Study For a leading retail REIT, FrontLine Partner Jim Vincent assisted client with BPO strategy formulation, supplier selection, contract structuring and process migration. Involvement Objective » Assisted client in evaluating several different » Evaluate BPO strategies and options after existing offshore supplier was acquired by larger company, causing the supplier to steadily lose focus on our client’s account » Led evaluation of BPO strategy selection across seven forms of ownership and control options, based on five core criteria and 13 decision elements » Re-evaluate BPO strategy and structural / control options to minimize risk of repeat circumstances » Prepared RFI materials for short list of suppliers to » Address client’s desire to broaden the outsourcing platform beyond existing work on CAM recovery pools to broader retail accounting services (six functional processes) » Find a supplier (and partner) who could evolve to truly take on the recurring BPO work as part of their operations outsourcing options ranging from strategic sourcing, Build-Operate-Transfer, joint venture and building out a captive BPO platform capture relevant information to evaluate providers » Conducted evaluation, due diligence assessment and selection of outsourcing provider to meet client’s objectives in off-shoring selected processes, as well as criteria to serve as a joint venture partner » Provided transaction structuring, negotiations and closing support on the supplier contract, including key performance measures » Developed initial process migration planning and transition management efforts until BPO provider had fully scoped work and staffed up team in India Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 42
  • 43. FrontLine Partners Case Study For a global institutional investment company with over $50B in A.U.M., members of FrontLine Partners designed a portfolio of business improvement initiatives spanning all business units within the company. Objective Involvement » Facilitated a group session of over 50 employees to » Increase EBITDA by 200 basis points » Improve access to and quality of business information » Define current sate processes, applications, data flows and data owners » Identify major business issues and design initiatives to address these issues » Implement a program office to manage the execution of these initiatives. » Deploy solutions to the over 900 properties under management. identify and prioritize current state business issues » Setup a portfolio of 30+ business improvement projects, each with defined objectives, benefits, participants, major activities and duration » Assisted in the development of a new budgeting and business planning process which reduced the time by 40% and increased consistency across the company (translates into $1mm in annual time savings/year) » Designed and facilitated a future state design session for the Acquisitions group resulting in a new investment memo process and organizational design » Outlined the structure for a data governance program within the company » Defined the approach for a major ERP reImplementation initiative Initial BPO Educational Discussion Document CONFIDENTIAL AND PROPRIETARY 43

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