Banks can learn something from commercial real estate pros like Sam Zell's Equity Group and GE Capital. These companies learned from the mistakes of others and have been taking a disciplined, modeled approach to their portfoliosowith admirable results. They are building on the pioneering work of people like Susan Hudson-Wilson, who, beginning in the mid-80s at John Hancock Properties, was a lonely voice in the wilderness advocating a portfolio approach to the field. Now, these successful investors maintain huge data warehouses of both market and econometric information, which they overlay with property specific data to help make both acquisition and lending decisions, not to mention keeping a keen eye on their portfolio's performance on a weekly basis. GE, for instance, uses a database product created by Hudson- Wilson's Property & Portfolio Research, based in Boston, along with someof her more sophisticated modeling software, which it pairs with in-house developed programs to help make lending decisions. "We ask how that data applies to making a loan and how these models help detect the likelihood and severity of default" and run everything through computers, says Peter Dubner, director of marketing and investment strategy of Stamford, CT-based GE. "There's too much number crunching to do it any other way," he says. And at Equity, says Greg Smith, evp of the Equity Residential real estate investment trust (REIT), research and modeling is an everyday tool. They use tools developed in-house in ways similar to those developed by Hudson-Wilson and others to help make acquisition decisions, as well as track the performance of the residential portfolio. "We track the directions of the market, and then help define the acquisition agenda," he says. "Then we use the same data to track our own portfolio, which then feeds back into the acquisition decisions." Smith's database knows everything about every apartment the REIT owns. Banks should take a more disciplined approach to lending in the commercial real estate market, says Hudson-Wilson. "The evil days will be back again if the banks aren't careful," she says. "Banks have to be on guard now, or they'll get hammered again." -reinbach tfn.com
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