Mapping the Road to Success
A picture is worth more than 1,000 words, according to Jeff Siebold, CCIM, The Siebold Group, Jupiter, Florida, especially if that picture is a color-coded map showing him all the investment opportunities in a particular market.
"When you go into a market, you want to quantify the supply and the location of the supply," says Siebold, who invests in apartment buildings.
Using database and mapping programs, he creates a colorful map of the supply in Memphis, Tennessee. "The properties with 30 to 50 units, I'll make those red. The properties with 8% vacancies, I'll make those green. I'll show the properties with the lowest mix of one bedrooms as black. Now I'll do an overlay of 1993 census tracts for Shelby County and the projections for 1998, so I can see where the population is growing. Contrast growth patterns with existing supply-that's where you're going to need more apartments."
Desktop mapping software, which generally goes by the acronym GIS for geographic information systems, represents the cutting edge of technology for commercial real estate and investment analysis. "It allows us to visualize and manage data effectively," says Siebold. "We can look at a map and see what's going on."
The full-fledged GIS programs help you create maps illustrating the relationships of the various factors that influence a property. You choose the data, which can include geographical factors, demographics, socioeconomic profiles, census trends, and your own information on specific properties and clients.
A Marketing Advantage
The expertise that GIS provides is a distinct marketing advantage, one of the reasons for the growing interest among commercial brokers and investors in mapping systems. The application's flexibility also fills the need for real estate professionals to customize according to the client-you determine what data will best suit your client's situation. For instance, the maps can identify buildings for sale, help determine a realistic asking price by highlighting prices within the same geographic area or category as a client's property, or help choose a retail site by showing car and foot traffic and the economic profile of potential customers within a five-mile radius.
Being able to demonstrate that knowledge visually in a client presentation offers a tremendous edge. "Mapping enhances a presentation," says Martin Edwards, CCIM, Edwards Management, Inc., Memphis, Tennessee. "I had a client who wanted to build an apartment complex. I did a map of where the existing complexes were-up popped 80 units. Here are the demographics-size, rent, and median income of the neighborhoods. People are amazed that they can see the demographics. It's pictures instead of words. People say, yes, I know such and such a street and yes, that building is on it. If things are geocoded correctly, you see what is actually there, but with demographic data."
That command of market knowledge can sway clients to make decisions to lease or purchase a property, says Ralph D. Spencer, CCIM, Harrison & Bates, Inc., Richmond, Virginia. "We had, as clients, three ophthalmologists with a very specialized practice. Most of their patients were over 75 years of age," Spencer says. The physicians were afraid of changing locations because they didn't want to move away from the age group they served.
"To present our case for a certain location, we had to demonstrate that there was a client base nearby in that age range," Spencer continues. "There was no way to defend that without GIS analysis. We analyzed their client base by zip code and then, using census data, we broke it down by age. Because we were able to show them there was a strong base of people age 75 and older in the area of their new office location, we were able to close on an 8,000 sf lease. They've been so successful in that location that now they're expanding."
Finding Market Gaps
The maps are probably the most dramatic effect of the software, especially for presentations, and they can be created even by the less expensive, elect ronic atlas programs. But don't dismiss the more powerful GIS programs because you've heard they're expensive and hard to use. They offer clear advantages over other types of data analysis: depth of field, ability to narrow the map down to a zip code or a six-block area; ability to layer data, giving a complete view of a particular market-geographic, demographic, socioeconomic, and real estate.
"Mapping is such an integrated part of understanding linkages," says Edwards. "It's a tool to portray what's there-size of units, number of units, rents, median income. When you see all that on a map, you see where the gaps are in the market."
GIS can be applied to al-most any commercial market. Finding the "gaps" in a market, whether it's apartments, office space, or retail, for sale or lease, is a primary use of the more sophisticated programs. GIS can also aid in site selection, especially for fast-food outlets, retail locations, or branch offices of banks and other services. Another use is marketing to a target audience: a broker can search within a certain radius of a client's property, determine which tenants in nearby properties have a lease expiring and do a mailing to that specific group.
What you want to do with a mapping program will determine how sophisticated a program you need. Simpler programs function more as electronic atlases, identifying a site on a map and providing directions when an address is entered. Others let you import data from your files to create site profiles that can include price, utility costs, and tax information along with location.
Most of the high-end programs come with internal databases and can access your own files in well-known database programs such as Lotus and Microsoft Excel. In addition, many offer additional detailed demographic files for a number of specialized markets including real estate.
Of course the maps are only as good as the data-and databases-you use. For his projects, Siebold uses Microsoft Access as a relational database along with the MapInfo mapping program. He compiles information on building owners and physical and financial aspects of specific buildings in ACT! Contact Manager, and links that to MapInfo also. He purchases demographic data from National Decision Systems and CACI, two of the many companies that repackage government census data in easy-to-access formats.
A Technology Comes of Age
Many brokers may not realize that this technology is actually available for use on the personal computer. "It's an emerging market," says Siebold. "The availability of the technology is just coming down to where it's possible to use it without being a mapping expert."
While Spencer thinks it'll be a few years before GIS is mandatory in the brokerage office, he notes that it is now widely used in retail to do sophisticated analyses of a customer base. For example, national chains use it to match supply with local customer needs. Yet mapping software companies and data resellers are continually improving the technology to make it more attractive to smaller businesses: one company offers all of the 1990 census "short form" demographic data-details on race, ethnicity, sex, age, and households for the entire country-for $99. Users can manipulate the data down to a block group of several hundred people-an unprecedented level of detail, which, at that price, is available to a much wider market of local and regional businesses.
It's only a matter of time before the GIS marketing advantage moves down the food chain in commercial real estate as well. Corporate brokerage firms in California, Georgia, and Ohio are on their way to implementing GIS, according to a recent article in Business Geographics magazine. Siebold notes that he is one of the few outside the corporate world using this technology today. But he sees it becoming an integral part of the profession in the next few years, when, he says "if you don't have a computer, I don't see how you can do business. This type of tool combined with e-mail, fax, and faster, cheaper transportation is mobilizing the busin ess."
GIS experts predict that increasingly specialized applications and data are the key to wider acceptance. Strategic Mapping already offers customized applications for real estate site analysis, as well as specific applications for health care, banking, and insurance.
As demand for GIS information increases, data value-added resellers (DVARs) are also filling the need to provide specialized information and, in some cases, are driving the market. DVARs purchase data from the government and then tailor it to specific needs of a particular client. DVARs often sell a specific package for less than it would cost for you to assemble it yourself. For example, traffic volume counts for the top 100 U.S. metropolitan areas can be purchased from Business Location Research. Wessex distributes U.S. Streets, a seven CD-ROM disk set that notes all streets, highways, rivers, landmarks, and county boundaries in the United States for $995; U.S. Boundaries from the same company has one disk of all the county boundaries for $495.
Reaching the Mass Market
In an increasingly computer-literate business environment, GIS acceptance is following the path of the spreadsheet, another tool that was originally intended for specialists-financial analysts-and eventually ended up on desktop PCs in offices and homes around the world. Only GIS' journey from mainframe to desktop is taking about half the time.
First developed for planners, engineers, and assessors, full GIS programs were too complicated to run on anything but mainframe computers. Around 1988, as more-powerful PCs became available, companies began developing desktop mapping programs.
Even then, the power of the technology and its application to real estate was evident to Spencer. While researching GIS, he paid a visit to the president of Strategic Mapping. "[The president] sat down at his computer and said, 'Ask me a question about Richmond,'" Spencer says. "I answered that I didn't know he was from Richmond. He said, 'I'm not, but ask me a question.' He pulled up Richmond on his computer screen and proceeded to answer every possible question I could think of about Richmond."
Although impressed, Spencer thought the software was still relatively expensive and hard to use. "At that time," he says, "I concluded that the program was just too sophisticated for real estate brokers."
From 1988 to 1991, as the number of vendors grew from about two dozen to 200, the price of the programs began to fall. Since 1992, the price of the data has dropped dramatically as companies are repackaging it in more-accessible formats, making use of the storage capacity of CD-ROM disks.
"Since 1988," Spencer says, "the microcomputer has gained additional capacity. The software is enhanced, you can use it with Windows. And the data can be compressed on CDs. You put that all together and bring it to the desktop, you put it in reach of many more people."
Which is exactly what has happened. According to Daratech, a Boston-based market research firm, sales of desktop mapping software for retail-currently the fastest-growing category-grew from $6 million in 1989 to $24 million in 1992.
A Range of Programs
Much of that 300% increase reflected the falling price of the mapping programs as well as the increased variety of programs available. The cost of a program can range from as low as $99 for a directional atlas program like City Streets to $1,300 for a full-fledged database and mapping program like MapInfo for Windows. The cost, as you would guess, is tied to the sophistication of the program. City Streets includes a map for one area. MapInfo includes maps of the world by country, U.S. state boundaries, 1,000 city locations, Canadian province boundaries, and 5-digit zip code files. With City Streets you can find addresses, calculate distances, plan travel routes, and customize and print maps with your own symbols and texts. High-end programs such as MapInfo offer a great deal more power and flexibility: you can manipulate data to answer "what if" queries, customize maps to include 50 layers of information, and access your own database files as well as purchase additional data for specific demographic or geographic areas.
Other programs that include database and mapping capabilities are Atlas GIS, MapExpert, Locator, and GeoLocator. They vary in base price from $250 to $900; additional data files add to the cost.
The price, according to Siebold, should not detract brokers. "It's cheap compared to what you get for it. The value is absolutely incredible."
A Steep Learning Curve
Although CCIMs sing the praises of the power of desktop mapping, few find it easy to use. "MapInfo is difficult. It's a time-consuming layering system," says Edwards. "I trained myself to get where I need to go. And the MapInfo people helped tremendously."
Spencer, who uses Atlas GIS, agrees. "I find it a very steep learning curve. We're trying to do it without professional help, but I do have an associate in another field who is going through a three-day training course to learn Atlas GIS."
In addition, desktop mapping requires a powerful PC. To get the most out of the more-sophisticated programs, you'll need today's standard of a 486 microprocessor with at least 8MB of RAM and a lot of hard-drive space for data storage-some programs take from 6MB to 20MB for data storage. Also, since many companies produce data on CDs, a CD-ROM drive is a good idea.
Changing the Way We Do Business
The money and time invested may be minimal when compared to the new markets this technology could open up. While commercial real estate brokers have traditionally relied on personal knowledge of a specific market to bring in new business, GIS may change that.
"The future of this technology is that it gives me a larger area to operate in," says Siebold. "I don't have to live in a town to understand what's going on any more. It used to be you lived in a town, you knew who owned this building, who built it, and so on. Now I can get that and more, without having to live there."
Using GIS software, Siebold and Edwards have created a template of information that they can apply to almost any market. "We make a decision to buy or sell based on the population-who's moving in, the income level, the family size and composition, the drive time, the employment opportunities," says Siebold. "We draw a three-hour circle around Memphis and take this template into those secondary and tertiary cities. In three months we have a good, accurate overview of what's happening there. Then we can go into any of these cities and look for opportunity."
Siebold, for one, embraces GIS as a natural extension of his current expertise. "It allows you to apply the principles of good CCIM analysis to large quantities of data-you can manage a whole lot more," he says. "It's knowledge, the ability to handle more information and make a better decision."