Are debt management technology solutions worth the investment?
Commercial real estate (CRE) investors must evaluate the benefits of a debt management solution against the financial costs and internal efforts of implementation and maintenance.
- Implementing a debt management solution can provide operating leverage for your organization
- The tasks accomplished through a debt management solution save your team significant time
- Avoid costly errors that are made if you do not firmly understand your debt
- Improve profitability by making better decisions about your debt
Determining if the cost of an investment is exceeded by the benefit received is central to evaluating any investment. Absent a debt management solution, the debt management process frequently involves a team member maintaining a spreadsheet, which seems “free.” A debt management solution is an incremental expense, and you should be confident that the value it delivers justifies this investment.
Improve staff efficiency
A debt management solution that includes consulting support to provide a holistic solution, inclusive of tailored implementation, training, ongoing maintenance, and live on-call support, reduces the need for dedicated staffing. In addition to providing operational and administrative leverage, such consulting support should bring industry best practices across debt management data capture, reporting, and workflows, and help you apply such in a bespoke manner most appropriate to your organization.
Improve productivity of your team
As your most valuable resource, your people should be utilized in their specialization and core competencies. Since very few organizations have a dedicated debt management specialist employed, the time and effort required to effectively maintain debt internally is substantial and, typically, not the highest and best use of your team’s time. Extracting information from loan documents to put into a spreadsheet, finding hard-to-access loan documents, searching through loan documents for answers to particular questions, and putting together reports all take time that is likely better invested elsewhere. When evaluating the cost of a debt management solution, consider how well that solution will allow you to redirect your staff’s time toward core competencies which drive profitability and away from lower-value, administrative tasks.
Save on third-party fees
Investors who outsource part of their debt management process to counsel, such as abstract drafting, will bear significant third-party fees. These tasks may be done more economically in a debt management solution. The ability to catch potential errors can lead to additional direct savings, like reconciling interest payments to ensure that billing is accurate, and highlighting errors that are not in your favor.
Avoid costly mistakes
Costly mistakes won’t appear in your annual budget. Having better organization, a key element of a debt management solution, reduces the likelihood of mistakes in your debt management process. No one intends to forget to provide lender notice for an extension, or accidently fail to submit financial statements to a lender at the appropriate deadline. These mistakes can lead to events of default and penalties, or lead to you missing an opportunity like taking advantage of potential springing optionality in your loans; a spread reduction or an ability to draw additional proceeds. Mistakes can damage your reputation with lenders. With better internal controls to minimize mistakes, you can realize material benefits.
Make better debt decisions
The key to being profitable is to make the best possible decisions in all areas of your business. Making more informed, timely, and strategic decisions about your portfolio can directly increase profits and investment returns. The ability to regularly track prepayment penalties to support decisions around timing of refinances and sales; thinking through maturity ladders to stagger debt and decrease takeout risk; comparison of terms offered by different lenders across deals to negotiate the most advantageous terms are examples of how access to information through a debt management solution allows you to make the most informed decisions.
There is a cost to implementing a debt management solution and you should carefully consider this cost in the context of your budget, either at the parent, investment vehicle, or asset level. In return for this expenditure, you should see direct savings to your firm, while gaining operational efficiencies and strategic advantages. If the best solution is chosen, the cost will pale in comparison to the benefits.
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