An Investment Bank Taps S&P's Real Estate Modeling Expertise

Higher interest rates, weak office demand and falling property valuations pose significant risks for the real estate sector. Fundraising and deal flow have decreased to new post-COVID lows, with just $18.2bn raised across 61 funds in the third quarter of 2023, the slowest rate in the present cycle of interest rate increases.^[1] The investment community is worried that certain subsectors of the  market, particularly office and retail, could come under stress since the pandemic pushed some workers away from urban centers and encouraged others to work from home. At the same time, borrowers facing near-term maturities on their loans might not get financing as financial institutions seek to preserve cash. The upcoming wave of refinancing could further impact the value of investments and transaction activity. It is essential for market participants to monitor activity very closely.

In addition to directing investment strategies, members of the investment management team at this multinational bank support their corporate sales, capital markets and M&A colleagues by providing valuable information on the real estate market. This helps the bank's clients achieve a range of goals, from making attractive investments to raising debt and equity to completing M&A transactions to selling assets. The team has used an internal model to assess a wide range of financial metrics for different types of real estate entities and assets, but felt the model was not robust enough to capture today's market dynamics. They wanted to find an external provider that had both real estate and quantitative analysis expertise to help update the model.

Pain Points

Members of the investment managment team were concerned that their real estate model was out of date and was not drawing on a comprehensive set of information to effectively evaluate opportunities and risks in the sector. They wanted to work with a reputable third-party provider that had:

• A strong knowldge of the real estate sector plus a strong knowledge of quantitative analysis to help update the model.
• Access to extensive financial data to look at a wide range of metrics by entity and location.
• Details on different property types, including multi-family, office, regional mall, shopping center, industrial, health care and hotels.
• Consistent, standardized data to support efficient model backtesting.

The team was familiar with S&P Global Market Intelligence ("Market Intelligence") that worked in other areas of the bank and reached out to learn more about modeling and data capabilities.

The Solution

Specialists from Market Intelligence described a host of data services, plus the analytical and sector-specific expertise of the firm's in-house modeling group. The group works collaboratively with clients to develop customized models that address numerous different issues. Together these services would provide the investment management team with:

	Access to model development skills	The Financial Modeling Group includes experienced professionals with extensive quantitative modeling and sector-specific expertise that work closely with clients to develop customized models to address a wide range of issues.
	Extensive financial data	S&P Capital IQ Financials provides standardized data for 5,000+ financial, supplemental and industry-specific data items for 150,000+ companies globally, including 95,000+ active and inactive companies across multiple industries. Data is available at numerous frequencies and points-in-time.[2]
	Real estate-specific information	The SNL Sector Financial dataset covers industry-specific GAAP and IFRS as-reported financials for current and historical companies across the globe. Real estate data includes debt and lease, portfolio analysis and same-store performance coverage for 1,800+ real estate investment trusts (REITS), real estate operating companies (REOCS) and listed property companies.
	Robust online tools	S&P Capital IQ Pro is a powerful desktop platform that provides access to an unrivaled breadth and depth of data, tech-forward modeling and productivity tools, news and research all in one platform to support analysis, peer group comparisons and more.

Key Benefits

Members of the investment management team were impressed with the offering and the ability to work collaboratively with modeling and real estate experts to finetune their internal model. They subscribed to the services mentioned and are now benefiting from having:

• A state-of-the art model that automatically draws in information on revenues, operating performance, market cap, debt obligations and much more to zero in on attractive opportunities for the bank and its clients.
• The ability to update the model dynamically with auditable, standardized data, plus use this data for reliable back-testing exercises.
• Powerful analytical tools on S&P Capital IQ Pro to monitor the markets, do peer group analysis, create valuation models and more.
• Confidence in their decisions that are now backed by time-tested data, expert analysis and a "go to" team to address any questions and issues.