E-Brokerage Revolution Promises to Re-Engineer the Industry
Although the commercial real estate market is one of the major sectors of the U.S. and world economies, it has been one of the last to embrace technology. The insurance, financial services, accounting, legal, retail, and manufacturing sectors long have been interested in gaining efficiencies and economies of scale in their industries. But technology often has taken a back seat in the conference rooms of commercial real estate brokerage companies.
The main reasons for this delay seem to be a historical lack of understanding of technology, resistance to change, and a fundamental belief that sharing information is counterproductive to financial success.
However, during the last 18 months, attitudes have changed radically. Although many companies still may be unsure of technology's benefits, they are beginning to understand its strategic importance.
The impetus for this attitude shift differs for each organization, but it may include a lost deal, a change in the guard, persistence by key associates, or pressure from important clients. Whatever the specific reason, the following fundamental explanations indicate why the adoption of technology is occurring industrywide.
New Efficiencies Online
Until a few years ago, technology provided minimal benefits to the industry. Efficiencies came from speeding up individual tasks. Word processing more efficiently produced a contract than a typewriter, a spreadsheet created a better pro forma than a calculator, and a database organized information better than a card catalog.
All these tools created electronic islands of information. Although they were faster individually, the results still were distributed in the same manner.
Even five years ago, the idea of connecting computers to a common worldwide network was not considered likely by most businesspeople. And connecting systems between a brokerage company and all of its clients was financially unrealistic.
But now the Internet has provided a way for everyone to be on the same digital page. It has encouraged the industry to rethink its business processes and potentially question the need for paper transactions. Why send investors Excel spreadsheets for analyses when they can read them online?
The efficiencies gained from having one network will have a huge impact on commercial real estate deals. One of the first will be forcing companies that overlooked technology to look again. Nothing is more effective in getting a commercial brokerage company interested in technology than losing a deal because the competitor used a Web-based project-management system or made an online presentation.
In the last 18 months, commercial real estate owners have put pressure on the brokerage community to begin improving its efficiencies. Although owners have not fully embraced technology themselves, the need to better understand and manage their real estate portfolios has influenced them to investigate new technological methods. Institutional owners of commercial real estate have led this charge. Some companies have automated the portfolio management process to the point of extreme efficiency. They have developed systems that can provide expenditure summaries down to the light bulbs at an individual suite or an entire portfolio level.
If these owners have developed systems with this level of capability, they obviously will demand the same level of sophistication from their service companies. Index card prospect management will not interest owners that have their entire portfolios in Internet-accessible databases.
Investment in E-Ventures
Wall Street's interest is another important catalyst of technology acceptance. When a major Wall Street player announces that it is going to automate transactions and bypass brokers, the industry pays attention.
Recently the financial world has taken a major interest in the industry. More capital has been raised for commercial real estate e-initiatives in the last 24 months than in any other time in the industry's history — and more is on the way. Some speculate that the value of these new initiatives could be as high as $200 billion during the next 24 months. That is a lot of money targeted to rethink how commercial transactions are done.
However, that level of financial investment typically brings a large number of failures, including high-profile failures. But, with multiple failures comes ultimate success.
While the industry will not reinvent its transaction process in 12 months, Wall Street ultimately believes that the transaction is much too inefficient, which is why it is committing large amounts of money to rectify the problem.
No doubt, a growing contingency of individuals has targeted the brokerage component as one of the first places to streamline the process. It is no secret that some people feel that brokers do not deserve their fees.
However, all the new e-ventures are unlikely to replace brokers. Ultimately, humans need to be involved in transactions. But now, more than ever, the brokerage community must embrace new efficiencies, learn the tools better than its clients, and seriously re-engineer entire organizations and personal business habits. If the brokerage community does not reorganize its business procedures and the types of services that it offers, within the next five years it can expect to see a dramatic drop in fees, because traditional services no longer will be needed.
Follow a Leader
Technology is now a strategic rather than a tactical issue. It affects every department and process of a commercial real estate company, and it is at the heart of the company's future. Leadership must take charge to initiate change.
Finding the right individual to lead the charge to re-engineer a company is the single most important decision a company can make today. It will be difficult for some current leaders of commercial real estate companies to look in the mirror and admit they might not be the right person for the job. Just because an individual is a good broker does not mean that he or she has the skills to reinvent a company. Making this admission and initiating the search to find someone who can is a positive first step.
The new leader must be given the authority to make decisions, spend money, and most importantly, be allowed to fail. This is not a six-month project that will be successful out of the gate.
Formulating a team, combining old and new thinking, and empowering a passionate leader to lead will help guide a commercial real estate company to the land of e-brokerage.