04 Jul 2023John Macdonald

Hold or sell: Clean data is the first step in making the right decision

Financial professionals determining the asset value of collateral held against NPLs (non-performing loans) rely on precise and specific information for making decisions.

The overall process involved with handling large volumes of NPLs across a portfolio requires numerous inputs, which most often includes a combination of both internal and external resources.  In today’s market, where conditions are changing rapidly, investors are under more pressure to make faster assessments for each of the properties in the portfolio. As such, the need for clean and trustworthy data has never been as evident as it is now. This is especially true now as real estate values for both residential and commercial are facing the most challenging times in recent history.

The bottom line is that recovery of value and optimization of the NPL portfolio hinges on getting the right data. 

Clean data is critical for the most important decisions that include whether to sell the asset at a discount to recover value, or whether or not to refurbish and then sell the asset to recover more value, or whether or not to hold the asset for the purpose of generating consistent rental income. 

Constant change now requires a robust and real-time asset management strategy that is informed by the right data

It is not difficult to see that asset values are under constant pressure in the current economic environment. Sourcing the correct information is actually a tedious process or even an unmanageable task in some cases since public and private data sources may not be identifiable, reliable or “tested” in terms of accuracy and purity. Ascertaining the quality of data in the past had become an “Achilles heel” for many involved in optimizing the value of both performing and non-performing portfolios in real estate. 

Over time, portfolio and asset managers have faced several challenges in common when it comes to sourcing and using data for decision making. 

One of the most common challenges include a slow onboarding process when the property information supplied is either incomplete, inaccurate, or conflicts with other third-party data sources. This can be a headache waiting to happen. It’s often the case that too much time is spent finding and fixing these data anomalies, which often means enormous amounts of time spent in scrutinizing spreadsheets. All of the aforementioned serve as a sure way to slow down the asset recovery rate. Get a key detail wrong, and you are back to step one!

Another common problem is only having access to fragmented systems for storing and validating property information – this means it is too easy for you to lose track of the current status of an asset. Excel is not the solution – seamless data transfers are difficult to achieve, resulting in out-of-date or poorly mis-matched information. Studies have shown more than 80% of large Excel models have errors. Property valuations from third-party valuers may get lost in other team members’ email inboxes and data folders where information isn’t always easily accessible by others or even trusted to be up to date in their own systems. 

These scenarios are all too familiar among those wincing analysts who have quick turnarounds as a priority. The Portfolio Manager (on the non-performing side) aims to maximise the return and minimise losses from their portfolios within a limited timeframe. The analyst must review the assets and decide whether to hold them while keeping an eye on any need to make capital improvements to assets prior to selling them for better returns or to sell them as they are. 

Today, thanks to the development of technologies created to address problems at scale, sophisticated data remediation & enrichment solutions are now available on the market. Problems can be practically resolved through an easy-to-use data ingestion and remediation system which is able to clean and standardize property data while highlighting any anomalies that may exist. The anomalies determined by this manner can then be addressed successfully, making them much easier to repair in leading up to the next steps to accelerate the onboarding of assets. 

Another overarching benefit provided through more sophisticated platforms for data remediation and enrichment solutions is that decision making can be enabled through an enriched, 360° view of your asset. In this way, additional information coming from trusted private and public data sources is onboarded throughout the process and then placed into a single source of truth for all property data with all your asset information, including geo locations. The information can be viewed easily on a map along with the latest property valuations, all stored in one place making for easier, quicker decisions on whether to hold or sell.

Overall, technology platforms are able to offer speed and continuity. 

A single platform containing clean and trustworthy data offers a frictionless workflow that encourages third party valuers inputting their property valuations directly. The process acts to enable more effective cross-team coordination, removing any doubts about property valuation data being correct.

Speed is needed to decide the strategy of each asset. It is now possible to have access to full granular property details enriched with other information which was previously unavailable or inaccessible.  

This includes information for the following: 

  • Seeing comparables on similar properties that have sold
  • Understanding liquidity and time to sell in an area or even in one apartment block
  • Understanding marketability and the asset’s current condition and aesthetic appeal (which allows assessment of any capital spend needed prior to sale, and the potential upside).

Overall, a single source of truth constructed with good, clean data enables you to quickly make the most important decisions on whether to hold or sell assets in your NPL portfolio. Collaboration becomes easier with all third-party valuers and all others communicating on a shared platform. The most important decisions can be made right from your desktop as you are able to visualize the entire portfolio with enriched asset information and multiple points of interest, all with clean data.  

Many legacy systems and manual processes are obviously no longer able to serve the needs of real estate investors and portfolio managers. Technologies with the right capabilities are now ready to be deployed for performing everyday analysis needs in making the most timely and informed sell-hold decisions.