Investment Analysis

Technology Rules

Automatic data capture will solve the problems with multifamily data.

For decades, the lack of uniformity in commercial real estate data has been the bane of the industry's existence. To determine a value for a property before deciding to purchase it, potential real estate investors must first collect and extract key financial data from a multitude of disparate files that come in countless formats and file types. 

This is a burden for buyers, brokers, and lenders alike. The analysis of the property - and comparing its fundamentals with other investment opportunities - becomes unnecessarily difficult and time-consuming.

In a world that's seen Bloomberg terminals streamline the analysis of corporate data and FICO scores used to rate credit-worthiness, the lack of uniformity in commercial real estate data is incongruous and inefficient, especially for multifamily properties. 

Standardizing Data

In many circles, commercial real estate is still not considered an institutional asset class, in large part due to this lack of cross-industry data standardization.

While this problem has become more evident in the digital world of 2017, the lack of standardization has been recognized for many years. About 15 years ago, several major industry players realized the problem and set out to develop solutions, largely focusing on creating agreed-upon XML standards for multifamily data.

Though the Mortgage Bankers Association, the National Multi-Housing Council, and major commercial real estate investors backed their efforts, neither the Mortgage Industry Standards Maintenance Organization nor the Multifamily Information and Transactions Standard has resolved this problem. Too many commercial real estate professionals still perform data entry.

As time has progressed, technologies have emerged to develop data standardization. Among the top contenders, automatic data capture holds the greatest promise.

With previous standardization attempts, the chief problem was the focus on creating a specific format for all parties. Participants would adhere to this standard format when compiling and  sharing information. While some parties within the multifamily sector adopted the proposed standards, none was able to gain enough acceptance to solve the issue fully.

Changing Directions

Automatic data capture, on the other hand, tackles the problem from a different angle. Instead of trying to change the data collection practices of the entire industry, the technology extracts the data from any PDF or Excel property management report. The system validates the data, processes it, and converts it into a digital standard.

Where MISMO and MITS came up short - by not securing enough adoption across the industry - automatic data capture is poised to succeed by allowing for the conversion of all data, including information compiled from property owners who are not using any specific, agreed-upon standards. This standardization of data in commercial real estate will have a ripple effect.

In addition to the efficiencies that are created, the digital nature of the extracted information also lends itself to trend analysis. Through conversion into charts and graphs, visualized data is easier to understand than pages of numbers.  The technology can assist analysts looking to identify trends and anomalies. 

Automated data capture and its enhanced insights help lenders in generating term sheets more quickly, help investment sales brokers demonstrate deeper understanding of relevant properties, and enable acquisitions teams to uncover hidden upside value. In short, it will give commercial real estate professionals industrywide the ability to perform their core job functions more effectively. 

Of course, a universal standard for the exchange and analysis of property operating data does not exist yet. This achievement, however, will be possible soon.

The technology to fully extract data from a significant majority of property management formats already exists. Hundreds of acquisitions teams, investment sales brokers, lenders, and appraisers have already eliminated data entry from their job descriptions. While commercial real estate professionals may not have reached the promised land yet, complete standardization for the multifamily sector no longer seems far off.

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Elliot Vermes

Elliot Vermes is chief executive officer at redIQ, a platform  for capturing, processing, and analyzing operating data for multifamily transactions. Contact him at elliot@rediq.io

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