Stability Through Tech Disruption?

Software tools for communication and data analysis could help streamline your business rather than cause unrest.

Many in the industry, including developers, brokers and lenders, look for ways to stabilize and smooth out the extremes of historical economic cycles. While the technological landscape is ever-changing and can be intimidating to some, these tech solutions offer valuable tools to help mediate these extremes.  

History has shown us that cycles in our industry typically run in approximate 10-year spans. I recently heard about a top international brokerage firm that engaged a well-respected think tank to examine the past 75 years. After months of research and collaboration, the firm delivered its report, with the team wheeling in nearly 100 boxes of data-heavy documents to support a conclusion that sounds too simple to be true: Markets tend to go up in years that end in a three and down in years that end with an eight.

With some slight variations, in my 40-year career, that trend has held remarkably true - at least until 2018. All in all, for commercial real estate, it was a good year - even if one could find signs of a slowdown or an impending market correction.

Could technology help the CRE industry weather economic instability with creative, innovative approaches to doing business? Being in a late-cycle economy, CRE professionals need to think outside the box to keep the good times rolling.

In a report on emerging trends, PwC reported “whether deserved or not, the real estate industry has a reputation for being slow to adopt new processes and technologies. This may be due to the fact that the industry has always emphasized personal relationships or because a firm's superior proprietary knowledge sets it apart from the competition.” But such resistance isn't possible in today's dynamic market.


The Next Generation of Data Technology in Commercial Real Estate

Richard Sarkis, co-founder and CEO of Reonomy, a commercial real estate data solution, discusses the next generation of data technology in commercial real estate.


Can Technology Be a Stabilizing Force?

Stability is the strength and/or capacity to withstand or endure. Specifically for CRE executives, this means the ability to smooth out the inheritably cyclical nature of profit and loss statements. 

CRE technology can be overwhelming, but it is easier to digest if you think about it in four major components:

  • Proptech, which deals with software and technology for construction, building operational analysis, and tenant relationships;
  • Fintech, which deals with new software and technology for financial analysis;
  • Artificial intelligence (AI), which deals with data aggregation and interpretation; and
  • Operational efficiency technologies (OETs), which focus on streamlining and increasing productivity, cost savings, and profitability through automation of back-office functions.

These components can bring stability to the industry in different ways, although proptech and OETs can quickly stabilize the bottom line. 

Property owners want their buildings to be “sticky,” meaning that tenants make their decision to renew not solely on economic savings. They should also factor in the environment and community provided to their workforce.

To help, the explosion of proptech applications dealing with building operational analysis and tenant relationships provides property owners and managers a deeper understanding of how their clients (tenants) currently use and want to use their buildings. Technology is more than compiling data - it's translating that data into powerful insights that allow you to make better decisions.

Technology has moved well beyond controlling heating and cooling. Now, sensors can track tenants throughout the building to help owners and managers monitor a building's envelope in new and tenant-centric ways. 

Smart building technology also provides advanced interpretation and analysis of data to give building owners and business owners information on how to improve workforce productivity. 

OETs allow for increased productivity by freeing up a company's existing resources, namely human capital, allowing these individuals to accomplish more and reducing the need to hire additional staff. 

For example, with the use of a customer relationship management system, a sales team can accomplish required administrative follow-up functions faster, leaving more time to work on building personal relationships. 

A recent study by Buildout found that 41 percent of respondents spend less than five hours a week on developing personal relationships. Selecting the right technology could easily double the time for this activity - what many CRE executives believe is the backbone of a successful operation. 

Some OETs create back-office automation that streamlines the process of tracking and paying commissions, referrals and expenses, and bonuses. These new cloud-based platforms provide simple workflows and accounting journal entry automation for everything that happens after the deal closes. 

A few solutions offer integrations with QuickBooks and other general ledger accounting systems as well. Others take it a step further and provide a platform that accurately, simply, and with complete transparency, allows landlords to pay commissions over the term (OTT). 

OTT commissions are a tremendous risk mitigator for building owners. Speaking of stability - how many owners can honestly say they have never paid a cash-out commission where the tenant didn't make it through the term of the lease?

When I was the managing broker of a 20-agent brokerage firm in Atlanta, I encouraged our agents to take OTT commissions. OTT commissions also can add stability to the brokerage side of the industry. I personally know dozens of agents in Atlanta that even during the Great Recession still had six figures coming in via OTTs - all while new transaction volume dried up. 

I've seen firsthand the power of technology at work in many areas of commercial real estate. In the report, “State of Tech in the Broker Sector,” recently published by SIOR and CRETech, 51 percent of respondents stated that technology has impacted their business “a great deal,” resulting in increased efficiency and business development.

People say they don't have time to learn new solutions, but they'll also say time is money. Technology can save you time. Those of us in CRE who don't rapidly start adopting technology will go the way of Blockbuster or the horse and buggy.

The Next Generation of Data Technology in Commercial Real Estate

Richard Sarkis, co-founder and CEO of Reonomy, a commercial real estate data solution, discusses the next generation of data technology in commercial real estate.

Daniel Levison, CCIM, SIOR

Daniel Levison, CCIM, SIOR, is CEO of CRE Holdings in Atlanta. Contact him at dl@aipbuzz.com.

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