Technology Continues to Transform Commercial Real Estate
The Move from Backgammon to Chess By: Ira Zlotowitz, Founder & President, Eastern Union Everyone who’s been associated with the commercial real estate world over the past 20 years or so has seen technology steadily establish itself within virtually every corner and crevice of the industry. Here are some thoughts and perspectives on the impact that technology has had upon our sector. Some of you may recall Defense Secretary Donald Rumsfeld in 2002 as he discussed factors leading to the Iraq war. The Secretary drew distinctions between “known knowns,” “known unknowns” and “unknown unknowns.” When it comes to our business, technology has essentially transformed commercial real estate from a game with “some knowns” into a game with “all knowns.” Not too long ago, some people knew the facts. Today, essentially, everyone knows the facts. From Backgammon to Chess Our industry used to be a little like backgammon, a game of strategy and luck, where there are both knowns and unknowns. Now our world looks a lot more like chess. We are playing a transparent game where everyone sees very move. There’s no luck involved. There are no unknowns. Who has been taking all of the unknowns off the table: Companies like Actovia, the provider of commercial and residential real estate property, ownership and mortgage data; Reonomy, which analyzes “millions of records to provide the most robust records for every commercial property and owner”; or TEN-X, the “end-to-end transaction platform” that matches buyers with properties that “align with their investment goals.” These tech vendors can tell us just about everything we need to know about an asset in a newly transparent marketplace whose culture has steadily become fairer and more open. And as we survey this newly opened-up landscape, and as we contemplate the long-term impacts of technology on real estate, there is at least one looming fatality: the off-market deal. The Off-Market Deal Why would an owner choose to handle a deal off-market? Typically, the seller initially did not want everyone to know of his or her intentions. Sometimes, such deals would involve a seller who wanted to offload an asset quickly and quietly. But sometimes, off-market sellers also did not have a strong handle on the true value of what they had to sell. If you’re only asking three or four brokers for price offers, you’re not getting much of a read on the asset’s value as assessed through the eyes of the marketplace as a whole. That’s why buyers would often do well in off-market deals. Nowadays, since we are all playing a transparent game of chess, there is little point in keeping your deal off the market. Why do it? Everyone is going to find out anyway. You might as well have the broadest market look at your deal. Now, the entire buyer universe has a chance to chime in on price—and it will. Off-market sellers will no longer run the risk of selling a property below its true value. The price will be vetted by the wisdom of the overall market and final prices will more closely reflect the asset’s true value, unlike during the off-market era. If all brokers have uniform access to just about all the asset information they could want, then what must brokers do to distinguish themselves? What must they do to deliver value to the client? In this market environment, mortgage brokers will often mainly be competing based upon their ability to deliver the lowest cost of funds to the borrower. Unsurprisingly, just as tech has universalized access to property info, it has also enabled mortgage brokers to compile longer lists of lenders. Thanks to this larger array of financing options, brokers are better able to secure financing at a competitive rate. Broaden Your Horizons Another big effect of technology’s rise has been the expansion of the pool of available buyers. In the pre-IT days, as a practical matter, sellers used to only be able to deal with buyers in their own neighborhood, city, or state. Today, technology has broadened sellers’ geographical horizons. Indeed, one of TEN-X’s marketing assertions is that it will find you overseas buyers. Another way technology has brought more buyers and investors into the picture has been through crowdfunding platforms. There are people out there with money to invest who had never before considered commercial real estate as an option. Crowdfunding facilitates the process of stringing together a de facto syndicate of buyers, including first timers. Smart companies are presently leveraging IT resources to help build databases of investors capable of bringing new caches of equity to the table. In addition, today’s smart brokerage firms are not shielding their technology assets behind a shroud. Instead, they are going out of their way to open-source their corporate tech resources with their customers. At our firm, for example, we offer clients a free, mobile-based platform that’s downloadable to a Smartphone—and enables buyers, lenders and brokers to fully underwrite a transaction, all in the palm of their hand. It’s also useful to remember that as tech-driven efficiencies penetrate more and more deeply into the broker’s milieu, these same efficiencies are also arising among clients. New and interesting technologies are also being embraced by buyers, lenders, and sellers. The industry as a whole is getting more efficient. All established brokerage firms today are using technology—enhanced by artificial intelligence—to match borrowers and lenders, buyers and sellers, and landlords and tenants. In the investment space, inefficiencies within the deal-making life cycle are being steadily eliminated. Naturally, there will be a human resources impact. With brokers closing more deals in less time because of their increased speed and efficiency, brokerages will inevitably need lower headcounts to get the same amount of work done. Maximize your productivity, your profitability and your competitive advantage by maximizing your mastery of technology. It’s one of the great “known knowns” of our industry.
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