Strategies to Mitigate Risk
With recent upheaval in the banking industry, what immediate real estate asset protection steps can real estate firms take? Covercy experts dive into this timely subject to provide GPs and deal sponsors tips to reduce risk exposure and protect real estate assets.
First, it’s important to note that real estate firms typically have a variety of strategies in place to mitigate risks and protect their assets. Some common strategies include:
- Diversification: Real estate firms may diversify their portfolios by investing in a variety of property types and geographic locations. This can help to spread risk and reduce exposure to any one particular asset or market.
- Due diligence: Before making any investment, real estate firms typically conduct extensive due diligence to evaluate the potential risks and rewards of the investment. This may include a thorough analysis of the property’s financial performance, market trends, and other factors.
- Insurance: Real estate firms may also purchase insurance to protect their assets from unforeseen events such as natural disasters, lawsuits, or other liabilities.
- Financial management: Real estate firms may implement sound financial management practices to ensure that their assets are properly managed and protected. This may include maintaining adequate reserves, monitoring cash flow, and closely managing debt.
Overall, real estate firms use a combination of strategies to protect their assets and minimize risks. While there are always some risks involved in any investment, careful planning and risk management can help to minimize the impact of any potential losses.
Diversification in Banking Services
There are banks that offer real estate firms the ability to open bank accounts and organize their accounts under each property or asset. Covercy* is able to offer this unique banking solution to customers through our banking partner, Choice Financial Group. This feature set can be particularly useful for real estate firms that manage multiple properties or assets, as it allows them to more easily track their finances and manage their cash flow.
Additionally, opening and organizing bank accounts per asset means each asset’s account is individually FDIC-insured up to $250K, offering more widespread FDIC insurance coverage than if all funds were held in a single account. See how this works with Covercy’s financial technology.
Some banks offer specialized real estate banking services tailored to real estate firms’ needs. These services may include:
- Property-specific accounts: Some banks allow real estate firms to open separate bank accounts for each property or asset that they own. This can help to simplify accounting and make it easier to track income and expenses for each property.
- Cash management services: Banks may offer cash management services that allow real estate firms to effectively manage their cash flow. This can include services such as automated payments, wire transfers, and account sweeps. Covercy’s banking platform allows GPs to automate distribution payments to investors and fundraise via capital call, all with bank accounts through Choice Financial to make instant ACH debit electronic transfers.
- Financing options: Banks may offer financing options specifically designed for real estate firms, such as construction loans, bridge loans, and long-term financing for investment properties.
- Treasury management services: Some banks offer treasury management services that can help real estate firms to optimize their cash flow and manage their financial risks. These services may include cash forecasting, interest rate risk management, and foreign exchange services.
Real estate firms should research various banks and their services to find the one that best meets their needs. It’s important to consider factors such as fees, interest rates, and the level of customer service provided by the bank.
One Bank vs. Multiple Banks
Whether it’s better for real estate asset protection to work with one bank or multiple banks depends on a variety of factors, including the size of the firm, the complexity of its operations, and its risk tolerance.
Working with one bank can offer certain advantages, such as the convenience of having all of the firm’s accounts in one place, potentially simplifying account management and reducing administrative costs. Additionally, a long-term relationship with a single bank may enable the firm to negotiate more favorable terms for financing and other services.
However, working with only one bank can also pose risks. If the bank experiences financial difficulties or there are disruptions to its services like we’ve seen recently with some large U.S.-based banks, it could negatively impact the real estate firm’s operations. In this scenario, having accounts at multiple banks could help diversify the firm’s risk and minimize the impact of any potential disruptions.
Ultimately, real estate firms should carefully evaluate their options and weigh the potential benefits and risks of working with one bank versus multiple banks. Factors to consider may include the size and complexity of the firm’s operations, the financial strength and stability of the banks, and the firm’s overall risk tolerance.
Real Estate Asset Protection with Covercy + Choice Financial Group
Covercy offers commercial real estate investment firms secure, fee-free banking solutions provided by FDIC-insured banks — with features designed specifically for commercial real estate. Choice Financial Group, Covercy’s primary banking partner, was founded in 1906 and maintains a healthy and strong balance and an impressive growth track record. Choice provides Covercy customers FDIC-insured, high-interest-bearing checking accounts for total access, liquidity, no fees, and no lock periods. Get started today with a free demo.
*Note: Covercy is a technology company, does not hold your money, and is not FDIC-insured.