Risk analysis uncovers how new fundamentals impact asset values

As Hodge says, “the inverse of risk is opportunity.” Ultimately, the power of knowing your weaknesses is to have the opportunity to improve your position. Risk assessments grant investors that power. “This is quantifiable data that can point to the cause or multiple causes impacting value of a property,” says Hodge. “Once an investor knows the specific factors impacting pricing, they can make strategic adjustments.” Those adjustments include modifying lease terms, pursuing a re-zoning strategy or investing in property-level upgrades.

Investors can also tailor the analysis to reflect their internal business strategy, which might include a high tolerance or even an appetite for some challenges. An industrial developer, for example, is likely to have deep experience working on land sites with environmental hazards. If a specified analysis shows a vulnerability due to a problematic land site, the investor will likely still pursue the deal or even target similar deals. Likewise, investors can also pinpoint and avoid common emerging market challenges. Office sector stakeholders are a great example. Post-pandemic, they are more sensitive to migration patterns and employment trends and are looking to highlight these trends and how they affect specific properties in risk assessments to narrow exposure.

Investors have historically focused on tolerating a certain degree of risk; a customised analysis of downside exposure helps investors become even more risk conscious. By understanding the nuanced characteristics that influence asset value, investors are empowered to make strategic adjustments that drive returns.