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It’s Time for the Commercial Real Estate Industry to Adopt a Tech Mindset

There is no such thing as a simple commercial real estate transaction. With dozens of stakeholders, layers of financing, regulatory concerns, and complicated, speculative valuation methods closing a transaction is inherently complex and time consuming. Thankfully, technology has already started to help. Tools have emerged that eliminate the recurring manual entry of data, improve underwriting through analysis consolidation and permit the direct integration of systems across several key stakeholders. Such developments have greatly expedited daily tasks like information collection, valuations and deal submission processes.    

Twice a year, at Berkadia, we poll our investment sales brokers and mortgage bankers to gain perspective on the future of the industry directly from our boots on the ground. This year, we were surprised by the reported impact technology has already had on day-to-day operations. Particularly as eighty nine percent of investment sales brokers and eighty three percent of mortgage bankers agreed that the industry’s evolution of technology has been key to streamlining processes. 

For example, multifamily valuation has benefited from deal analysis and underwriting platforms like redIQ. Being able to quickly map specific rent roll and operating formats to a standard chart of accounts and then feed the resulting historical data into any valuation template within a few clicks saves hours of tedious manual entry. Thus, giving analysts time back to spend on high-value activities like pro forma modeling and investigations into operating performance drivers.  

Similarly, cloud-based solutions like Beek Hill, that automate real estate valuation and cash flow modeling to streamline transactions have made a positive mark on the industry by providing a solution that supports real-time portfolio and lease-level calculations within a collaborative application. Through the introduction of these technologies, service-based property firms can reduce a process that once took multiple days to just one hour. This offers investment and sales teams the ability to analyze further and create more accurate models that can then provide their clients with transparent, data-informed recommendations. 

On the other hand, the multifamily sector has become increasingly competitive due to the movement of new investors into the asset class who are taking advantage of both low, long-term interest rates and an increased preference among consumers for renting. As acquisition teams review 300-400 deals per closed transaction, the process of sorting through such a large in-bound volume of deals invariably leads to wasted effort and overlooked opportunities. 

The valuation process is becoming even more complicated, as several promising start-ups are using alternative data sources to help acquisition teams tailor their criteria when screening deals. For example, Real Factors provides unique information tools and predictive insights to commercial research and investment professionals by using alternative data. Predictre empowers real estate investors, lenders and developers to make their forward-looking data actionable by aggregating, visualizing and analyzing unstructured data to produce new insights. Predictre’s technology allows investors to make better, faster investment decisions based around the acquisition teams’ specific directive.

Some startup companies are also finding relevant alternative data correlated to commercial property performance. For example, Whose Your Landlord is a platform that crowdsources tenant opinion, creating aggregate scores of perceived performance that property management firms and owners can then interactively manage. 

Additionally, more companies are starting to unlock data from the most common and arguably the most comprehensive crowdsourced sensor data: the cell phone. Cell phone data has proven useful in tracking retail traffic, commute patterns and regional interests. Unlocking further correlated alternative data will have a dramatic effect on how teams evaluate new deals for acquisition, how properties are managed and how portfolios are optimized. 

For as far as the commercial real estate industry has come, there is still plenty to look forward to. We expect future innovation to offer near real-time access to even more precise data, which will allow investors to make faster, more informed decisions while still remaining cognizant of investor objectives, privacy and other intrinsic concerns. 

As property managers and investors look to differentiate their assets and reduce operating costs by lowering turnover expenditures, renters and tenants are seeing a rise in the integration of smart home and office features and amenities. These integrated features range from something as simple as a smart home or in-office thermostat, to a Bluetooth connected door locking systems that accommodates after hours deliveries. Technological implementations can give consumers a quick and remote way to control preferences, while also allowing property managers to mine resulting resident data to inform their property amenity strategies. 

Differentiation goes beyond smart hardware, as creating a better tenant experience is the best way to increase the value of a property in the eyes of the tenants themselves. Solutions like HqO, a tenant engagement platforms, and Hello Alfred, a building wide concierge service, offer commercial real estate teams with a better way to connect with their tenants and improve overall experiences. Both platforms offer building operators with previously untapped insights about their tenants that can help drive property performance.  

While current technological integration is focused around ease of use and amenities for consumers, we expect a continued shift in technological application, away from convenience and towards complete personalization, across all commercial property types. A focus on hyper-personalizing the consumer experience will result in mass data collection, which in turn will allow companies to anticipate consumer preferences and adjust accordingly.

All-in-all, change is imminent, and in some cases, already well underway. As the industry continues its digital transformation journey, a true turning point will come when capital markets begin factoring technology into the valuation of real estate firms. Technology has a tendency to create outsized winners (e.g., Google in search or Amazon in online retail), and therefore, we may see an increase in industry consolidation with a handful of dominant players.  

Several factors can help companies get a head-start in the technology race. It is critical for commercial real estate firms to continue nurturing technological innovation through designated programs and initiatives focused on connecting with promising start-ups. To assist with this we recently launched BeEngaged, a program that advises and fosters startups who are redefining the commercial real estate industry by providing emerging companies with resources, strategic counsel and a collaborative network to test and grow their innovative concepts. By investing time and energy into the tech start-up community, CRE companies can help foster growth and inspire positive changes for the entire industry.

From this, we see that one thing which must change is the industry’s mindset. Moreover, it is critical for decision makers to understand that the PropTech ecosystem operates differently than the real estate lifecycle. While the life of a property spans decades or even centuries and thus one mistake can have serious consequences, the PropTech lifecycle is constantly evolving. The fluid nature of technology, along with evolving customer needs, mean that real estate companies must stay nimble, run experiments, recognize mistakes will be made and pivot accordingly. Once a majority of companies in the industry begin to adopt this flexible mindset, the true power of technology in commercial real estate will be realized and put into action.

Propmodo is a global multimedia effort to explore how emerging technologies affect our built environment.

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