How small-to-medium-sized CRE portfolio managers can score big league returns by using smart building technology
In 2003, Michael Lewis published the book, “Moneyball: The Art of Winning an Unfair Game.” It told the story of how baseball’s small-market Oakland Athletics pioneered a high-tech approach to scouting analytics and posted an amazing 103-59 win-loss record against the league’s richer, big-market teams. Despite having the third lowest payroll in baseball, Oakland’s General Manager, Billy Beane, used technical innovation to gain the upper hand.
Thus begins our lesson for small-to-medium-sized commercial real estate (CRE) portfolio managers. With a “Moneyball” mindset, you can leverage technical innovation to outperform your competitors, position your organization as the preferred choice in the market, and drastically expand margins for a return on investment upwards of $2 to $4 for every $1 invested. If that doesn’t have you leaning over the rail for a closer look, I don’t know what will. The fact is, technical innovation has always been a game-changer, and for early adopters, especially small-to-medium-sized early adopters, it can create lasting, breakthrough performance.
Catching Up on Smart Movement Momentum
In a previous article, I talked about the momentum building around smart cities, where a new breed of consumer is demanding environmentally sustainable options, and investors are responding with major funding of next generation projects. I acknowledged that cities are comprised of buildings, and that 70 percent of all commercial buildings in America consist of less than 10,000 square feet of space. I also posited that as the trend toward urbanization continues, the demand for smart cities will drive CRE managers to adopt smart building technologies – and now is the time for such managers to think “smart.” I further defined smart technology as “electronic systems and devices that are connected online, record data in real-time and are managed interactively to optimize outcomes.”
Today, we will discuss a few of the smart technologies that may affect small-to-medium-sized CRE enterprises near-term. Our goal is to frame some practical next steps that could achieve “Moneyball” results on a small-ball budget, fast.
3 Technology Trends You Can’t Ignore
To begin, let’s examine three technology areas that I believe will soon directly impact CRE decisions at small-to-medium-sized properties, especially restaurants, retail stores, warehouses, service outlets and the like. They are:
Health, Wellness and Environmental Responsibility, recognizing how building design can affect occupant health, wellness and productivity, while also improving energy efficiency.
The Internet of Things (IoT), describing machine-to-machine communications and control via sensors and remote monitoring systems.
Data and Analytics, using information gleaned from building systems and connected internal and external smart devices to better manage facilities and improve occupant experience.
Health and Wellness Sells
According to a recent World Green Building Council report, indoor air quality, thermal comfort, lighting, acoustics, interior layout and “active” building design all factor into how properties rate in the eyes of consumers and perform financially. Today’s health-conscious consumers not only prefer doing business in spaces that emphasis wellness and all things “green,” they are actually willing to pay more for these qualities.
“Healthy” buildings promote productivity. They reduce absenteeism. They take sustainability to new heights, by going beyond reduced energy consumption (which can certainly lower overhead and improve margins), to creating a competitive advantage that attracts and retains quality tenants and guests.
In October 2014, the International WELL Building Institute seized upon this growing sentiment and created the WELL Building Standard, a scientifically based certification and credentialing program that supports human health and wellness in building and interior design. This July, they officially passed the 100 million square-foot mark, certifying WELL Building projects in more than 30 countries and are now poised to launch WELL v2 in 2018.
Why not position your facilities in this light?
Improved building ventilation, high efficiency HVAC, precision thermal controls, light sensors, dimmers, smart appliances, low-noise equipment and responsible energy management are no longer optional in today’s economy. They are table-stakes, and the technology is available to create and retrofit CRE spaces to the new standard now.
If you haven’t done so already, survey your tenants, guests, prospects and partners to find out what your facilities lack to be more competitive. Then, where possible, upgrade to meet these new specifications. Any action you pursue will likely lead you to the next point in our discussion, IoT, where you can begin to take your game to the next level.
Connecting the Dots via Internet of Things
IoT has fast become the technology of choice for improving building performance quickly, flexibly and affordably. By connecting equipment to sensors and sensors to reporting systems, CRE managers, especially in the small-to-medium-sized space, can rapidly compete with the big boys, and realize benefits well beyond those derived from isolated system upgrades at individual locations.
Simply put, IoT can create transparency across a facilities portfolio and enable interactive control of a CRE ecosystem for dramatic cost savings, competitive differentiation and topline growth. Gone are the “old school” ways of managing facilities. The cost of having highly paid technicians conduct daily truck rolls to check equipment status, respond to breakdowns and repair systems after-the-fact are over. With IoT in place, system sensors detect malfunctions before they become major repairs, extending equipment life, reducing overhead and, most importantly, improving customer service.
More so, the ability to program and remotely control entire networks of buildings, to turn off systems after hours, adjust temperatures per time-of-day or occupancy counts, detect open or closed doors, monitor refrigerator settings, and set business rules that limit local adjustments and system access, can dramatically lower operating costs.
Gartner predicts that IoT sensor deployment in CRE is “likely to grow at a compound annual growth rate of 78.8 percent” to nearly 1.3 billion devices by 2020. IoT devices are inexpensive and easy to install. They have the power to instantly turn dumb equipment into smart equipment. And, the number of applications for them is growing daily, managing everything from HVAC, lighting, water, elevators and energy, to parking, security, fitness trackers, waste and occupancy monitors. That covers a lot of ground. And, that generates a lot of data. Which leads us to our third major technology cluster shaping the CRE playing field, data and analytics.
Data, Analytics and Smart CRE Decisions
Taking real-time information and using it to forge business opportunities is the magic behind the CRE smart revolution. This is how “Moneyball” thinking transformed the Oakland A’s, and how it can hit a homerun for you when it comes to managing CRE portfolios.
You can install the latest green-health-wellness equipment, connect it with existing systems, and communicate the running data via IoT to any device, but without intelligent processing that turns data into insight, you’ll likely be leaving runners on base.
According to a recent JLL corporate report, early adopters of CRE data analytics are twice as likely to “be in the top quartile of financial performance” among peers, five times more likely to make faster decisions, and three times more likely to execute as planned.
Online analytical processing has matured to a state where complex analyses from multiple data sources can be sliced and diced in seconds. Information can be modeled and displayed vividly, on demand, to simulate and predict outcomes that optimize CRE decisions. Using sophisticated algorithms, machines can actually “learn” patterns and adjust on the fly – without human intervention – automatically responding to situations to lower cost, improve margins and enhance service.
What’s more, by performing data operations using low profile, subscription-based cloud services, backed by a specialized, CRE-focused managed services provider, portfolio managers can quickly identify business opportunities, spot outlier events and gain critical decision input without dedicating valuable resources to number-crunching or systems monitoring.
Up Your Game Through Smart Building Technology
These cutting-edge capabilities put the “smart” in smart building technology. They give small-to-medium-sized CRE enterprises the ability to:
Better engage tenants
Improve customer service
Accurately evaluate properties
Make wiser investment, location and leasing decisions
Glean insights through expanded demographic information
Differentiate in the marketplace
Play hardball at the negotiating table
As you intentionally pursue healthier building environments, connected ecosystems and real-time decision input, your CRE enterprise can become leaner, more attractive and more profitable than ever. With a little creative thinking, and just enough “Moneyball” innovation to back you up, you can bring your facilities efficiently up to speed, and compete at a big league level.