The functional chain

Four specific functions can be differentiated in the value chain for real estate investing. They all include the authority to make decisions affecting the value of the underlying asset.  Some investors prefer to perform one or more functions themselves. In many cases these investors actually are highly skilled investment professionals. In many more cases a professional service provider would have been well worth spending the fee. On the other hand, some service providers take on to perform multiple functions simultaneously. This creates major conflicts of interest which in the end often lower investment performance.

	Based on the risk profile and financial plan of an investor the asset allocator determines how much of the investor wealth is to be invested in the various asset classes such as stocks, bonds or real estates. He then decides who is to perform the various sub-portfolio management functions. Independent financial advisors commonly suggest to invest 15-30% on ones overall wealth in real estate.
	After funds have been allocated the (sub-)portfolio manager determines the risk profile and preferences of the investor and defines a sub-portfolio strategy. Based on this strategy he identifies possible investments, performs the investment due diligence, invests the funds in a number of projects, manages the investments and initializes their disposition. The performance of the portfolio is largely based on the quality of the portfolio manager's asset manager network.
	Real estate is a very local business. The fact that an asset manager is successful in Los Angeles does by no mean imply that he would perform in Atlanta as well. This is why the portfolio manager must invest with multiple asset managers (in order to diversify portfolios). The asset manager's responsibility is to purchase the asset, perform the actual value management and dispose the asset as defined by the investment strategy. Decisions are based on his knowledge of the respective micro market.
	Depending on whether a specific investment is being made in a development project or in the acquisition of a completed real estate product, either the developer or the property manager have the most direct influence on the asset's value. This value always originates from projected and current tenant income.