Read the full November edition of Originate Report here.
Armanino LLP, one of the top 25 largest independent accounting and business consulting firms in the United States, understands the importance of staying on top of emerging trends in consumer and professional-facing technology. With four primary areas of service – assurance/audit, business management, consulting, and tax – the firm works with a litany of industries, including technology, nonprofit, private schools, real estate, and consumer business.
The firm is a member of the American Institute of Certified Public Accountants, an affiliate firm in the California Society of Certified Public Accountants, a member of the Center for Audit Quality, and Affiliate member of multiple state accounting associations.
Originate Report sat down – virtually – with Partners David Erard and Jason Gilbert to discuss the firm’s implementation of technologically-driven practices to the real estate sphere and discern how Armanino has adapted to the coronavirus pandemic.
Jason, who has been part of ‘the Armanino family’ for 14 years, started his career with the firm’s outsourced accounting consulting practice where he found his passion for the real estate investing sector. With a focus on private equity debt funds and mortgage real estate investment trusts, he currently co-leads (with David) the Real Estate Investment Fund practice within Armanino.
David began his career in 1999 with a “Big 4” accounting firm and has always worked in the private equity area with a focus on real estate. Back in 2006-7, the peak of the housing market would soon become one of the largest recessions on file; this period of uncertainty, however, allowed him to sharpen his skills in several complex business and tax areas, and he now has over 20 years of experience in the industry. Although periods of uncertainty can be challenging, he added that downturns can be learning opportunities for professionals in a variety of spaces, especially accounting and real estate.
“The biggest learning experience for me from the last downturn was how important it is to adapt and look forward, in order to help our clients address the issues they may be facing,” David said. “Looking forward is always critical, but especially after a period of recession when there are changes in relief packages and tax laws and so on. We were in a position on the tax side to help clients navigate these difficulties.”
Outside the realm of government-provided relief, David said periods of tumult – such as the housing crash of 2008 or the coronavirus pandemic – offer opportunities to showcase Armanino’s ability to perform under pressure, providing the best service possible for clients.
“There’s a lot of navigation necessary when considering distressed debt on top of the general economic issues that clients were facing,” he said. “I would say my biggest takeaway from the last downturn was learning to evolve and tackle complex issues thoroughly, helping clients navigate and understand different situations so any challenges can be addressed effectively.”
This adaptation, Jason added, included increased flexibility in the way funds were structured so clients could not only act, but pivot if needed – this mindset also kept the fund manager in mind, making sure protections were in place for both parties.
“The learnings from that period, the housing crash…led to growing our involvement in the day-to-day advisory, sitting side-by-side with fund managers to make sure everything is in check. Our oversight became that security blanket that allowed Fund Managers to sleep at night, allowing them to wake up each morning to focus on finding the next deal and delivering a yield that is marketable and of interest to the existing and future capital base.”
This desire to more closely advise, Jason said, was the impetus for creating a fund administration platform within the accounting firm. The ultimate vision for the platform, he added, is to create a ‘more holistic approach’ to relationship building and fund management. This includes an integrated tax, audit concierge, and software implementation solution that builds on the Armanino expertise.
“I think that the platform we’re creating adds a lot of value, not only because we understand the business transactions from an accounting standpoint,” he said. “But also, because we will be a single source of advisory for your complex transactions, whether that is carried interest, master feeder, blocker, or distressed debt. We’re a CPA firm, so we’re not a standard fund administrator that is plugging information into a software program and managing data. We understand the inner workings of these complicated transactions and their implications on the allocations to the investors.”
One rewarding, albeit challenging aspect of creating this platform, Jason added, is building a platform that has the flexibility to work with a wide variety of fund structures including private equity, real estate, or private equity debt funds. Laying this foundation will provide Armanino with the ‘required runway’ to assist any type of fund manager.
In addition to laying this foundation, David said that it is impossible to overstate the value of ‘being able to offer flexibility with clients.’ At the end of the day, he added, being in a relationship-driven business requires any group to have a variety of options and maintain a unique, customized relationship with every client.
“I just think what we find, as a general proposition, is that there is an increasing value on flexibility,” he said. “Just about everything you do now in life requires some level of flexibility, and of course this is more important now with the coronavirus. What I’ve found is that clients appreciate this not only because it customizes the things we do for them, but it also helps solidify those relationships. From our standpoint, I think it’s really important to understand the industry and have us fit into the puzzle in whichever way it works best for each client and for us.”
When setting out to create a new platform, David said that the evolving role of technology – paired with its dissemination throughout different fields – played a role in making sure that customers have instant access to readily-available information, and also ensuring that processes are not manually-driven or delayed.
“In the last decade there’s been a movement towards a technology-driven business environment,” he said. “I think it’s not just the way that information is delivered that is important, but also our clients have to build relationships with their investors. To a certain degree, the user experience of any tech platform encompasses how you share information, what information is being shared, and how data is packaged in a format that the end user needs. These changes in technology, and we’re keeping an eye on them, are driving a lot of what we’re doing with this new platform.”
Technology, of course, has played a critical role in the facilitation of communication throughout the coronavirus pandemic. Adapting to a remote work landscape, David said, has allowed Armanino to learn about the communication preferences and patterns that exist internally and externally. The group, he added, has been well-equipped to a remote, technologically driven landscape.
“Armanino grew up near Silicon Valley, and from my standpoint, we had a number of really good systems in place pre-COVID that allowed us to react to this situation very well,” he said. “For the group that I work with specifically, I’ve lived and worked primarily remotely for a number of years now. So, for the team I’m working with, and our clients, a lot of our functionality didn’t change. But we understand that so many of our client’s lives have changed because of the pandemic.”
Having traveled on a very limited basis since February, David said, has been an adjustment. Even though he said that the more ‘personal touches’ of the business have been diminished, he added that the health of the Armanino family is of the utmost importance.
“I think for us, I like to look at Armanino as a complete picture,” Jason said. “We’re very fortunate to already have such a focus on technology and paperless processes, and as a transient CPA firm, we can pick up just about anywhere and start working. So that aspect of the transition hasn’t been very difficult. What has been strange is the adaptation to not interacting face-to-face with clients and colleagues. The conversations themselves change pace as well.”
Working from home, both David and Jason said, has emphasized the importance of segmenting the work and life balance. When the home becomes the office, Jason added, it can be difficult to separate the two. Although that may be the case, both said they feel ‘very fortunate’ to be in a situation where they can continue their work from home.
“We’re continuing to manage, right? That’s all any of us can do! We’re continuing to grow, to adapt, and to overcome,” Jason said.
Moving forward, Jason said he doubts that a sense of ‘normalcy’ will ever return to office work. Many businesses, he added, have already switched from permanent brick and mortar locations to rented or shared space. Once the gathering limitations and social distancing mandates have passed, both Jason and David said that scheduled in-person meeting times and split home/office schedules will foster a feeling of regularity in an otherwise uncertain time.
Despite the shift in work locale, David said the pandemic has allowed different facets of Armanino to continue to explore emerging technologies, such as blockchain. This growing aspect of technology, ostensibly, is a modification-resistant list of records that are linked by cryptography. The open, distributed ledger, for example, can record transactions between two parties, which could have lasting and widespread applications in the real estate space.
An advantage of blockchain, Jason explained, is the technology’s ability to store records without fear of retroactive alteration. This functionality, he added, can clearly showcase the transactions between two parties – it is important to note that ‘blocks’ of data cannot be changed without all previous data points being impacted. When thinking about the implementation of this functionality, however, Jason said some industries are more conducive to changes in the technological landscape.
“As we all know, real estate tends to be sleepier when it comes to advances in technology,” Jason said. “But now, technological solutions are showing up everywhere and there are definitely people who are adopting the opportunities that are out there. When it comes to blockchain, one thing that gets me excited about its practical potential in the real estate world is in the process of working with the county recorder.”
Historically, these routine processes have been paper-driven and rife with potential issues. With blockchain, Jason said, a real estate professional could easily discern title information such as previous ownership or encumbrances effect the signed transactions live on the blockchain.
“There are a lot of firms, not just in real estate, that have had to adapt in the last six months to be more flexible and take advantage of technology,” David said. “I think a lot of people in the real estate sector now have a newfound appreciation for how technology can help advance their businesses and investments because of the adjustments that have been made. It wouldn’t surprise me to see some eyes opening and people being more willing to explore tools that make workflow more seamless for everyone.”
As Armanino implements the functionality of its new fund administration platform, Jason said it will be important to keep in mind that some clients may have trepidation about a change in operationality. With that said, however, he added that both fund managers and prospective clients are continuously looking for ways to differentiate themselves from the competition.
“What differentiates you in the eyes of the investor can be everything,” Jason said. “Our data exchange room and investor portal can be applied in a number of situations. Another point we’re thinking about often is concentrating our ability to aggregate data and provide meaningful analytics, for example, providing line of sight into where the fund is having the most success raising capital or predictive analytics on where the next geographic investment expansion should be based on the current portfolio success.”
David echoed this sentiment, adding that it may seem difficult, from the perspective of a more established, traditional firm, to meet the technological needs of potential investors. Armanino, he added, takes great pride in learning about the changing demands of investors and sharing that information with clients.
“It can be scary for these firms, maybe on their own, to try and tackle these changing demands,” David said. “One of the things that I think is appealing about our approach is that we can help them set up the technology and make sure that the systems are in place so that they are in line with and even ahead of their peers. Clients love dealing with their investments and running their portfolios, and I think we try to take the other side of their business and customize the processes so that the interface works for them and their investors and there is less hassle with the back office and technology side of their shop.”
Regardless of any trepidation on the client-side, both Jason and David agreed that Armanino is well-equipped to assist clients with an ever-changing technological and regulatory landscape. Although the coronavirus pandemic’s future in the United States is uncertain as of now, David said that one lesson he learned from the housing crash of 2008 is that patience – paired with a keen sense of changes in the marketplace – can lead to a more positive, holistic approach to any period of difficulty at hand.
“We want to provide the best service available to our clients,” he said. “We fully realize that things are strange right now, but we’re moving forward and are excited to implement our new tools, such as the online fund administration platform, to seamlessly integrate best practices into the work we do every day.”
In an effort to ensure the highest quality control and operational standards, Armanino complies with all of the professional education requirements and regularly undergoes peer reviews by an independent public accounting firm. Both Jason and David said they could not be prouder of the firm’s continued growth and success in a number of areas, including real estate.
“We work hard to learn about emerging opportunities in the industry and share those with our clients,” Jason said.
To learn more about the services offered by Armanino LLP, visit armaninollp.com today.