Real Estate Firm Makes Better Investments By Outsourcing Accounting | Article

adding machineHampshire Companies, a real estate investment fund management firm that invests in industrial and retail properties, has a long history of success in real estate investment. However, the key to continued success is not to become complacent. Hampshire sought to expand its investment base from high net worth individuals to include institutional investors such as state and corporate pension funds, foundations, and endowments.

President Jimmy Hanson realized the company needed to change its systems and processes to meet their demands. He concluded outsourcing was the fastest and most efficient want to meet this accounting challenge.

“All business processes evolve. If we were going to experience significant and sustainable growth, we couldn’t play the same way we did before,” explains Hanson.

Growing the company, which currently owns 224 properties in 30 states, meant replacing Hampshire’s old accounting software with a more versatile and responsive system. Hanson says going to a real estate software provider was not a viable option “because they would offer me a canned program that didn’t fit my business needs.” Asking them to customize was out of the question because it was beyond Hanson’s budget.

In addition, these programs only offered “fragmented” business information. Most real estate investors like Hampshire Companies already outsource their leasing to a local service provider. Accounting is one service these outsourcers offer. Typically, each service provider does it their way. The real estate owner has to consolidate this disparate information to manage its portfolio, explains Jamie MacArthur, National Director, real estate outsourcing, for Deloitte Touche Outsourcing (DTO). “Somehow the owner has to make sense of this information,” she says.

In addition, the real estate company has to hire people to continually consolidate these numbers. “It’s a very expensive way to operate,” MacArthur observes.

“Most of the real estate programs are accounting-oriented and don’t address the needs of executives making business decisions,” Hanson explains. He could not a software program that could generate the data he needed to make better real estate investments. “I was unable to have information at my finger tips in order to make quick and accurate decisions,” he adds.

Outsourcing Provides All the Info in One Place

So Hanson turned to business process outsourcing to grow his company, which is based in Morristown, New Jersey. The biggest struggle was determining “what to keep and what to give up,” says Hanson.

Selecting a service provider was easier. Hanson had worked with MacArthur on a former project. In 2002 the Hampshire Companies became a beta tester for Deloitte’s “Real Estate Solution.” Built on a J.D. Edwards platform, this outsourcing program offers Web-based access to integrated real estate information — accounting, financial reporting, property management, lease administration, work order management, and space management — via a user-friendly portal. “They’ve developed a good approach to real estate accounting,” Hanson says. “All the information is in one place, on-line, real time.”

For example, outsourcing improves the accuracy of the accounts payable process. Too often an invoice gets forgotten in a drawer. DTO’s process creates an image of every invoice it receives, which it then routes electronically to the proper person at Hampshire Companies. This employee visits the Web site to view the invoices and approve them. “This process enhances control,” says MacArthur. “We operate our outsourcing business in a public accounting environment.”

Even though Hanson had strategic reasons for outsourcing, cost was always a consideration. MacArthur says every client to date has experienced at least a 20 percent cost reduction. In addition, costs become variable because the buyer only pays for services it uses.

The Secret of My Success: Change Management

One of the reasons the ensuring partnership has been so successful for the Hampshire Companies is that Hanson realized “you don’t adapt old processes to new technology.” Instead, he viewed outsourcing the accounting function as a “paradigm shift.” He found he approached not only the processes but the business itself differently.

Change for humans is always challenging. Hanson reports the first four months were particularly “frustrating.” Hanson personally worked to convert the “change resisters.” His words of advice on change management: “Be methodical and patient.” His battle plan: Go after the low hanging fruit, first. “I attacked the pain-in-the-rear processes first. I showed them successes there. That proved outsourcing worked. Once they stopped doubting, my employees opened their eyes to the possibilities,” he says.

Hanson also singled out a few key employees willing to embrace his new way of thinking. They become the company’s Elmer Gantry’s, preaching the benefits of the new way to their peers. “We had a snowball effect. I started with a snowball and ended up with an avalanche,” reports the president. Now all 52 employees are embracing the changes outsourcing made possible.

Lessons from the Outsourcing Journal:

  • Companies who want to strategically change their businesses find the most efficient way to do that is by outsourcing.
  • Outsourcing the real estate accounting process allows real estate investment firms to consolidate a vast amount of disparate information, allowing them to easily retrieve the information they need to make informed business decisions.
  • Outsourcing reduces cost by at least 20 percent and makes accounting a variable, not fixed cost.
  • Change management is tricky. Patience and perseverance are the key.


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