Focus on what you do best and let others do the rest.

The New York City real estate market has reached heights that have surprised even the most savvy of investors. These exceptional values have been due in part to a thriving economy, liquidity in the marketplace, real estate investment trusts (REITs), and a business friendly political environment.

Real estate, regardless of its cyclical nature, will continue to be a solid investment for many institutions. Of course, owning, investing in, lending money to, and monitoring real estate assets requires a great deal of resources, time and money. Institutions may be bombarded with the influx of information and lose sight or control. These forces can be more easily managed by looking to external resources as a solution.

In-House or Not?

According to The Outsourcing Institute's 1997 Outsourcing Index, companies using outsourcing services are financially more stable than the average U.S. business as a whole. Outsourcing can bring a quick fix to the company in need through additional manpower for a specific task or expertise that is not currently available in-house. Outsourcing is about partnership, reliability and flexibility. It allows the company to build a strong relationship, while solidifying its growth strategy and improving its focus.

One important area to consider for outsourcing is accounting services. An outside accounting firm helps widen perspectives by bringing the outside world in and providing the support to better accomplish a company's goals and objectives. In-house departments are often not completely up to date on all of the tax rules and regulations, or FASB (Financial Accounting Standards Board) changes, nor do they have the staff to perform non-recurring type analysis. A recent Bradley University study indicates that outsourcing the accounting related functions of internal auditing is highly effective, as roughly one third of respondents had outsourced this function.

According to the study, the principal providers of internal audit outsourcing are local CPA firms that have extensive expertise in the specific area of accounting being outsourced. This is especially true for companies that are required to use Big Five accounting firms. A smaller local firm can provide the resources needed for preparation of workpapers and FASB analysis used by the Big Five accounting firms as a basis for their audits in a timely and cost-effective manner.

As the real estate market is constantly changing, accounting needs are in a constant state of flux. An internal accounting department may be unable to meet certain work requirements due to changing demands. Outsourcing enables a company to maximize employee capabilities by leveling off peaks and valleys within their workload while eliminating employment issues, headhunter fees, advertising costs and reducing space requirements, all of which can be quite significant.

Choosing a Partner

Once the decision has been made to outsource, reputation is key. Request proposals from your top choices, arrange one-on-one meetings with the best prospects and determine the firms' experience within the industry.

Managing the Outsourcing Function

According to "How to Keep Up Effectively Managing the Outsourcing Relationship," by Robert Klepper and Wendell Jones, there are several critical factors for successful outsourcing management. Once the outsourcer is chosen, setting defined goals and objectives are instrumental to a successful outsourcing experience. Managing the costs of a project, providing a system of incentives and penalties, and establishing measurable performance criteria are also key determinants of a positive outsourcing relationship.

Outsourcing can elevate a company to a level of higher productivity, reaching a state of competitive success. In an industry where rapid change is commonplace, outsourcing is essential to maintain a competitive edge.

(Frederick R. Berk, who has over 15 years of accounting experience, is a partner with Friedman Alpren & Green LLP's Real Estate Group. With extensive knowledge in real estate taxation, accounting and auditing, he has participated in construction development activities, income taxation, restructuring and consulting. Berk has authored several real estate articles, and is a member of the American Institute of Certified Public Accountants, the New York Society of Certified Public Accountants, the National Realty Club, and serves on the Board of Directors at the Young Mortgage Bankers Association. For more information call 212-582-1600.)