Edwin Wint, Contributor

What are property portfolios? Property portfolios usually comprise investments in the form of individual properties, legal interests in properties and property development projects. Unlike the portfolios of stocks and bonds, which may be constructed or inliquidated in short order, the property portfolio evolves over a considerable period of time. It is usually a long and tedious process to search for suitable properties to match performance criteria, both as individual investment properties, as well as their contribution to the portfolio as a whole.

Property portfolios are governed by corporate investment policy which prescribes objectives and sets targets usually in terms of diversification, income and growth requirements, return targets and acceptable levels of risk. It is at this stage that decisions about the optimal or target balance of the overall investment portfolio, diversified among the various investment media, are made. This is the point at which the exposure to property investments and the ultimate size of the property portfolio should be determined.

The size of the property portfolio as a percentage of the total value of the fund has declined to around five to seven per cent in recent years in the UK, while in Jamaica, subsequent to the meltdown of the financial sector a few years ago, the total commitment to property has fallen to around 10 to 15 per cent. The sectors of the property market that usually comprise the property portfolio include office, shop, industrial, agricultural, residential and overseas. It is recommended that the property portfolio include a mix of these sectors.

EXPERT MANAGEMENT

In contrast to a property portfolio, a portfolio of stock-market securities requires relatively little internal management. This management involves the selection of a portfolio with an optimum mix of assets for the upcoming portfolio period and exploiting any opportunities by switching assets as and when appropriate. On the other hand, property portfolio requires constant expert internal management and involves structural adjustments to the composition of the portfolio and its sectors, maximising rental incomes, lease re-negotiation, property maintenance and efficient collection of rents.

These internal management activities are absolutely essential to achieve and maintain a satisfactory standard of portfolio performance and efficiency. The portfolio managers should consider outsourcing this function of property management to experts in the field to ensure that the standard of management required is resourced. Too often, the level of expertise in this sector is lacking internally and the mismatch of human resources to the task is the result.

Over the past decade, corporate Jamaica has been realising the critical importance of engaging expert estate management services to ensure the satisfactory performance of the property portfolio, to ensure satisfactory return on investment-and-maintain the security of capital and income to the property portfolio.

Edwin Wint is a facilities management consultant and chairman/CEO of La Maison Property Services Limited.