FLP BPO educational viewpoint 2014

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

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


2

BPO Strategies and Usage in General

Shared Service Center Organizational Structure & Design


3

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


Assist You in
Determining the Right
Way to Move Your
Company Forward in
Exploring the BPO
Market


4

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.



5

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


6

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.



7

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?


Key Attributes

Why not outsource?


8

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


ensure reductions in indirect
and fixed costs
• Comprehensive and highly

structured arrangements


9

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.



10

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.



11

BPO Implications at Large for the Real Estate Industry



12

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.



13

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


Land Owners


14

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



15

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



16

Typical Business Case Elements and Value Proposition



17

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



18

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)



19

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


5

Reduction in
annualized
operating
expense
typically 39%

6

7

8

9


10

11

12

13

TIME

20

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



21

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


• Process improvement using Six
Sigma methodology
• Technology optimization/leverage

• Process re-engineering


TIME

22

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.


Risks
Risks are inherent.

Pressure for results
forces compromise.

People issues can be
overwhelming.


Momentum
BPO transitions and
transformation take
on a life of their own.

Management may
struggle to maintain
control.

23

Deploying BPO Strategies at the Industry Sector / Company Level



24

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



25

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.



26

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


Low Probability

»
»
»
»
»
»

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

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


 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


 Capital Projects / Development Mgmt.
» Design
» Bidding & Contracting
» Project Management
» Construction Accounting & Rptg.

28

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


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

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

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



30

Control / Ownership Continuum of Alternative Options



31

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



32

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



33

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



34

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



35

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



36

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


•

Not now. Watch market for opportunities as critical mass
and confidence heightened.


37

Next Steps



38

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



39

Appendix Items
QUALIFICATIONS / CASE STUDIES
Project Framework and Timeline
Project Methodology and Approach
Key Document Section Description



40

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.



41

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



42

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



43

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