VTS is one of PropTech’s biggest success stories. The leasing and asset management platform went from being an ambitious startup to the commercial real estate industry leader when Blackstone became an investor and brought with them one of the largest real estate portfolios in the world. Then, in late 2016, VTS merged with their largest rival, Hightower, in a bold move that solidified them as the driving force and one of the largest companies in the new wave of technology changing the way the global property industry manages and leases property.
To say that they have done well since then is an understatement. They now have around 8 billion square feet of commercial real estate being managed on their platform and count more than 600 commercial landlords as clients. VTS CEO Nick Romito put it another way: “One in every three office buildings in the U.S. is now on VTS and we are adding hundreds of millions of square feet every month.”
I give this background not to applaud the accomplishment, even though I am an unabashed fanboy, but to illustrate the vastness of property data that VTS has been able to amass. They now plan to use this rich information (which will be non-identifiable, aggregated, and anonymized) to create a market benchmarking and analytics tools for their clients called MarketView. This is a first-of-its kind product that will allow commercial real estate professionals to compare, in real-time, their performance versus the market for critical operational, financial and supply and demand metrics.
Remember that their platform is where the work involved in a leasing transaction actually happens. That means that they are able to keep an account of every interaction that takes place over the course of a transaction, as well as track the end results of deals, like net effective rents. Nick spoke on that very topic, saying, “Lease comps have been used because it’s the only stat that has been available. This is a really backwards-looking piece of information. What VTS has is forward-looking.”
“Lease comps have been used because it’s the only stat that has been available. This is a really backwards-looking piece of information. What VTS has is forward-looking.”
What he means by “backward-looking” is that lease negotiations take time, sometimes up to six months or more. That means that when leasing terms are finally agreed upon they may no longer adequately represent the market. With MarketView, VTS will be able to illustrate both current market conditions and how they have changed over time. Brandon Weber, former CEO of Hightower and now VTS’ Chief Product Officer, explained, “We look at the future of commercial real estate and it might look a lot more like trading stocks with a bid/ask spread between the landlord and the tenant for the value of space. Landlords are trying to build great leasing and acquisition strategies for the future. Up until now they had to use six month old data and the rumor mill to try and figure out which properties had the highest demand.”
MarketView will be able to uniquely provide accurate transaction metrics as they occur and, unlike self-reported data obtained by surveys, the data will be based on actual real-time leasing and transaction data.
It isn’t just the specifics of the deal that VTS will be able to report on, but also the process. As any landlord knows, time is revenue. The level of understanding that VTS has of how long a lease takes to go from a tour to a closed deal can provide valuable insights into the efficiency of the leasing process. “The industry has never really talked about or measured leasing velocity,” Brandon said, “Fundamentally landlords want to know, ‘how long does it take to get a deal done?’ Deal conversion rates and velocity are in every other industry and we can bring this to commercial real estate because we have been measuring this for about four and a half years.”
As Brandon said, this will give commercial real estate a metric similar to product turnover in consumer goods. Now landlords that use the MarketView tool will be able to benchmark their deal length with industry averages. They can find where the bottlenecks in their process are and try to build a strategy that gets tenants into empty spaces faster.
The granularity of the data that VTS can provide creates an almost unlimited amount of ways to analyze a portfolio strategy. Now landlords can understand which industries tenant demand is coming from and the types of space they require, allowing landlords to be more nimble and adapt to the current leasing environment faster than ever before.
“Here is a question that no one has ever been able to answer effectively,” Brandon proposed, “does building pre-built space like market-ready suites, really drive true ROI? Does it increase leasing velocity and rental rates? Now you can look at what is the overall ROI compared to other properties.”
For now, access to MarketView will be limited to VTS clients only. I expect that eventually they will start opening up this data to others via reports and partnerships. VTS has been one of the loudest voices for open data initiatives and APIs. They know that creating a better understanding of the commercial real estate landscape can help the entire industry be more efficient and profitable. In a parting comment Brandon offered a positive view on other players in the property data game and the future of commercial real estate, “We are excited about the work that other companies are doing. We are moving from a world where you can be a good investor just because of what you invest in, to a world where the competitive advantage is going to be around operational excellence. That is where all the alpha is going to be created.”