CRE Peer-to-Peer Benchmarks: Definitions, Best Practices, and Impacts

Uncertainty looms large in today’s commercial real estate (CRE) market, often leading owners/operators, asset managers, property managers, and others to make decisions based on assumptions rather than facts. For example, waiting for interest rates to drop can be a risky strategy. CRE Peer-to-Peer Benchmarks, specifically tailored for multifamily properties, offer you a more insightful perspective of your portfolio as it relates to the market, allowing you to make fact-based decisions and implement meaningful strategies for your next move in your portfolio. 

Understanding the answer to the question “is it me or the market?” is essential. Continue reading to learn how you can uncover the truth about your portfolio through CRE Peer-to-Peer Benchmarks.

Understanding CRE Peer-to-Peer Benchmarks

At their core, CRE Peer-to-Peer Benchmarks involve comparing your property’s performance with similar properties in your neighborhood or city. By leveraging property operating statements, these benchmarks allow you to assess how you compare with regards  to revenue, expenses, NOI, and other key performance metrics. Whetheryou opt for automated selection or hand-pick comparable properties, the goal remains the same: gaining a deeper understanding of your property’s performance within the broader market landscape.

Defining Peer-to-Peer Benchmarks 

The effectiveness of Peer-to-Peer Benchmarks lies in their ability to provide meaningful insights. By accurately defining the parameters of comparison, such as property type, location, and size, these benchmarks ensure relevance and accuracy. Additionally, incorporating key performance indicators (KPIs) relevant to the CRE industry enhances the depth of analysis and facilitates actionable decision-making.

Key Metrics and Data Accuracy

Key metrics commonly used in Peer-to-Peer Benchmarks for CRE include:

  • Core Property Attributes
  • Top-Line Financials
    • Revenue
    • Expenses
    • NOI
  • Expense Line-Items
    • Insurance
    • Utilities
    • Repairs

Ensuring data accuracy is crucial in peer-to-peer benchmarking initiatives. CRE professionals can achieve this by:

  • Collaborating with reputable providers
  • Validating data sources and methodologies
  • Regularly updating benchmarking criteria and parameters

Best Practices for Peer-to-Peer Benchmarks

One of the current challenges faced by CRE professionals is accessing reliable and comprehensive data for benchmarking purposes. Traditional methods often rely on outdated or incomplete information, leading to skewed comparisons and inaccurate conclusions. However, by leveraging tools like the Thirty Capital Statistical Valuation System (STATVAL) and conducting peer-to-peer benchmark analyses on a quarterly or biannual basis, CRE professionals can overcome these challenges and drive meaningful improvements in property performance.

Leveraging Benchmark Data

By comparing your revenue and expenses to those of similar properties, you can identify areas of overperformance and underperformance compared to the market. Regularly running these reports not only ensures you move with the market, but it also provides a clear roadmap to proactively make moves and help you outperform the market.

Understanding your revenue position in relation to other properties in the report will allow you to identify any opportunities for revenue growth. Similarly, assessing expenses can help determine if your property is in line with market norms or if it’s an outlier, indicating potential areas for improvement. By pinpointing areas of underperformance and learning from top performers, CRE professionals can implement targeted strategies to optimize their property’s performance and maintain competitiveness in the market.

Fostering Transparency and Accountability

Overall, Peer-to-Peer Benchmarks foster a culture of accountability within the CRE industry. By promoting data-driven decision-making and benchmarking best practices, these initiatives facilitate greater transparency in market performance, pricing trends, and operational efficiencies. Moreover, by holding stakeholders accountable for their performance relative to industry peers, Peer-to-Peer Benchmarks drive continuous improvement and innovation, ultimately benefiting the entire CRE ecosystem.

The Impact of Peer-to-Peer Benchmarks

Peer-to-peer benchmarks are pivotal in shaping decision-making processes within CRE organizations. By offering objective insights into market trends, competitor performance, and improvement areas, they empower stakeholders to make informed decisions in line with strategic objectives. 

They are instrumental in helping you answer the question: “Is it me or the market?”

This information allows for clear identification of underperformance areas and a roadmap to outperform the market. Peer-to-peer benchmarks enable fact-based decision-making and strategy formulation. In navigating the real estate market, they optimize rental pricing, reduce operating expenses, and identify portfolio expansion opportunities. Leveraging data-driven analyses, stakeholders overcome market uncertainties. Moreover, these benchmarks foster a culture of transparency, accountability, and continuous improvement, encouraging broader participation and easing anxieties through robust security measures to unlock property potential and ensure lasting success.

Request a Peer-to-Peer Benchmark Report from Thirty Capital Performance Group

Are you ready to elevate your property to greater success? At Thirty Capital Performance Group, we provide tools, services, and recommendations tailored to your property’s unique needs. Contact us today to request a sample benchmarking report or download our complimentary performance chartbook.

Thirty Capital Performance Group Releases 2023 State of Multifamily Operating Performance Chartbook

CHARLOTTE, N.C., Sept. 12, 2023 — The highest inflation rate in a generation helped drive record annual growth in 2022 for multifamily revenue (9.26%), expenses (9.20%), and net operating income (9.30%). These figures eclipse the five-year average growth from 2018-2022 of 4.38% for revenue, 5.09% for expenses, and 3.82% for net operating income. These findings are revealed in Thirty Capital Performance Group’s 2023 State of Multifamily Operating Performance Chartbook. The Chartbook, released today, cost-effectively equips owners/operators and asset managers with the information needed to more accurately project performance, budget, and pro formas for the next 12-24 months.

The report provides insights into the relative performance of the US multifamily market for garden-style, mid-rise, high-rise, senior, student, and manufactured housing subtypes. The report covers the 20 largest CMSAs over the past five years based on CMBS data, including trends for property taxes, insurance, utilities, repairs, property management fees, and payroll.

“With expense growth greater than revenue growth over these recent periods, and with inflation still above the Federal Reserve target rate, it’s imperative for owners and investors to take a close look at the contribution to expense growth across operating statement line items, as well as to differences across multifamily subtypes and geographic regions,” said Rob Finlay, Thirty Capital’s CEO & Founder.

Among the insights shared is that the last few years have been unusual for the apartment industry as operating expenses have consistently risen faster than revenues. This trend will likely persist through 2023 and into the first half of 2024 due to elevated inflationary pressures from payroll, insurance, taxes, and other items, challenging net operating incomes. The impact will vary significantly across markets, product types, and individual assets. In response to these dynamics, Thirty Capital Performance Group analyzed multifamily CMBS data for over 15,000 properties across 30 major markets to show that these factors are essential to consider in underwriting future expense growth.

“In the Chartbook, we review annually reported data on the six most crucial operating statement line items, the top 20 CMSAs by property count, and major multifamily subtypes. The data shows record 2022 revenue, expense, NOI growth, and significant variations across CMSAs and subtypes,” said Webster Hughes, Ph.D., Managing Director of Analytics and Economics for Thirty Capital Performance Group.

For additional granularity and considering performance differences, the report also separates garden and mid-rise properties into those backing institutional-sized loans versus those in the Freddie Mac Small Balance Loan Program.

“While many organizations perform this analysis manually, we are leveraging technology and data science to streamline the process and make the data more accessible to the market,” said Dr. Hughes.

Thirty Capital Performance Group offers additional support to multifamily stakeholders to show them a more granular application of data in valuations, cap rate determination, and peer-to-peer benchmarking.

Download the Chartbook Here

About Thirty Capital Performance Group

Thirty Capital Performance Group is a real estate advisory company that provides expertise at the intersection of capital markets, technology, data analytics, and data science to deliver results to clients. Its multidisciplinary team solves the challenges faced by owners, operators, property managers, asset managers, and institutional investors in validating cashflow and economic assumptions, providing independent, unbiased insights and recommendations.

About Thirty Capital

Thirty Capital is a vertically integrated CRE investment and advisory firm dedicated to protecting cashflow, generating equity returns, and creating alpha from commercial real estate