A look at how CRE tech has impacted our knowledge, skills and market.
Ever wonder who would win the game if the best sports team today played the best team of 20 years ago? I mean with all the innovation in fitness, training, nutrition, and equipment certainly our athletes today would dominate their predecessors, right? Was it just Hollywood romanticism that enabled Rocky to defeat Ivan Drago or Will Smith to defeat the aliens?
Let’s apply that same logic to our own industry and look at the technology-driven progress we’ve made in the commercial real estate business over the last 20 years. There’s no better way to measure our progress than compare it the past. Of course, it’s really more about examining our progress than comparing one generation to another.
Twenty years ago the CRE business looked a lot different than today. Most of the changes have been driven by technology, some noticeable, some not as much. Let’s take a trip back in time to frame the CRE world as it was then.
Back in Time
The year is 1996, Bill Clinton gets reelected, Motorola releases the StarTAC flip-phone, Netscape is the dominant browser, Braveheart gets Best Picture, the Cowboys win the Super bowl, only 10% of the US population are using the internet and Mark Zuckerberg is 12.
Meanwhile, the commercial real estate industry is experiencing a prosperous period and the economy as a whole is doing well. CRE continues to be a relationship business ever driven by the control of information. The brokers who make the most are ones who know the most about their market and the people who influence it. The tools of the trade are simple. They include a phone, a fax, a Mapsco, email, an HP12-C, Act! and MS Office. There is no real traction by CoStar or LoopNet yet and most market research is done by driving and tracked via personal databases and publications like Black’s Guide. Photos of properties are taken with film, developed and either scanned or literally glued to paper for presentations. Contracts are sent by mail or FedEx for signatures. You get the picture, or may remember it. By today’s standards, this was like the dark ages or walking ten miles in the snow to get to school.
Yet, somehow business got done. Skyscrapers were built, tenants leased space, properties were bought and sold, and Walgreen’s battled Eckerd’s for every corner in America. Without the technology we have today, how’d they do it? Were sales and leasing cycles longer then? Were opportunities missed due to lack of information? Were brokers back then just back-slapping good old boys who made deals in their BMWs between lunch and golf? Could the era of breakfast clubs really provide the networking and info sharing necessary?
Ultimately, the question is: with all this technology and innovation, are we better at performing our CRE jobs today than yesterday?
Back to the Present
Let’s begin the examination of that question by first dispelling a myth of technology: that technology makes our lives easier, simpler and therefore better. This may apply to leisure-oriented technology, but not necessarily business and process management. Technology enables us to do more in the same amount of time, thus allowing us to produce and achieve more. Notice there is no mention of easy, only more. Also please note my usage of the words “enables” and “allows”; it’s still up to people to recognize and seize the freedom innovation provides.
The lightbulb expanded the average day so more could get done. The assembly line enable more products to be made in the same time. The phone enabled people to communicate with more people thus expanding their network of relationships. The unifying theme here is more productivity. This is the key to getting business-related value from technology. Sounds simple, but it’s not. Let me put it another way; if you’re particularly strong in one area, employ technology to augment your talent, not replace it. If you’re weak in some areas, use technology to automate those. Where we run into trouble is when we surround ourselves in tech tools but don’t understand them well enough to use them to gain any efficiencies or improvements. It’s sort of like giving a caveman a fishing net and all he uses it for is a hammock.
So are we better today than yesterday? I’d say we are a lot better at doing things the same way we did them two decades ago. Let that sink in for a minute.
Today there are a myriad of tools available at price points nearly anyone or organization can afford. There are market data platforms, analysis tools, applications for property management, lease administration, project management, space planning, energy management, mapping, contact and sales pipeline management, IWMS, marketing, and many more, all in the cloud and nearly all accessible from a smartphone. Add this to social media and the whole world literally opens up to anyone! In many ways, there are so many technology tools out there, it can be difficult to figure which is what, let alone how to implement them. Perhaps we need an application to help us choose applications. Today the pricing of the technology is affordable, it’s the time and consulting required to figure it all out that is proving cost-prohibitive to adopting many (sometimes any) of these platforms.
I find most CRE professionals are still performing their jobs in the same manner they were 20 years ago, albeit with a lot more software and tech tools at their disposal. There is no question we’ve accepted and incorporated technology into our professional practices. Unfortunately, I also have to say I see the predominance of the innovation targeted at work-load reduction rather than increased productivity. This means instead of using technology to free up their time to do more, many are simply carrying the same workload. For example, 20 years ago, brokers spent a significant amount of time researching their market for each assignment. They would drive target areas, call leasing agents to get available space, confirm rates, and prepare presentation reports for their client. Today all these steps have been replaced with a CoStar report that takes mere minutes to produce. So far so good, right? A process that used to take days now only takes minutes. Except what are we doing with the additional free time? Are we processing twice the number of transactions today than yesterday? The answer is no.
There are, of course, many brokers who have significantly embraced technology and are achieving amazing results, but relatively few. My point here is not to criticize brokers, only to highlight the fact that if technology is employed without a documented objective, the result may not be increased or better anything, only technology. Too many business consumers of technology view it as a pill or performance-enhancing drug. They buy the technology and feel progressive, rather than viewing it like a treadmill or set of weights that needs to be used to enjoy the benefits. Similar to a fashionable wardrobe change than actionable innovation.
I’ve had many discussions with cohorts, clients and industry thought-leaders about this topic. In no particular order, the commentary typically go like this:
Transaction Cycles
“Ok, we may not be doing more deals, but the transaction cycles are getting shorter.” Not really. My observations indicate deal cycles have not changed in any measurable way. This is not a fault of CRE technology, this is simply a truth about people. Real estate transactions are remarkably people-centric and complicated. Think about it, for every CRE assignment, there are principals, brokers, attorneys, space planners, property managers, contractors, subcontractors, municipal inspectors, network/phone technicians and so on. Its true transaction management platforms have done a lot relative to capturing important data and ensuring the process tasks are completed, but it’s still up to people to complete those tasks. We’ve realized improvement in the transparency and quality of our services, but not the speed of the transactions.
Efficient Markets
“Well the widespread availability of CRE market data has made the market efficient to the benefit of everyone”. Not yet. Unlike the financial markets, transportation and other consumer driven industries, accurate information is still not readily available. The data is primarily supplied by landlords or their agents and is increasingly controlled by essentially one company in the US. The problem lies in the reliability of the data, which for simplicity sake can be divided into two categories: what the market wants and what really happened. Much of the data available today related to properties for sale or lease is not representative of true market, but reflective of asking rates and “what owners think their properties are worth”. They (data) are more marketing arm than valid research. The result is a great head start, but still requires verification which brings us back to doing things the way we always have. It takes only a couple of minutes to generate the CoStar report, but right back to hours or days to confirm the information and space availability. Now I know where the additional free time is going.
The most important market data is the data representing the results of CRE transactions. This is the information vital to making the market efficient and it drives nearly everything from a macro point of view. Reliable data on rental rates, lease structure, absorption, land values, demographics, construction costs, etc. are what define the health of a CRE market. This ultimately influences development and helps reduce the risks of over or under development. One benefit of aggregating this data through a dominant player like CoStar is at least we all know where to go for the data. The problem is the data is commonly inaccurate and not nearly open and accessible enough. Competition helps this, but even so we need to devise a reliable method to extract this information from thousands of landlords and tenants who either have an interest or a legal obligation in not divulging this data. I wish I had the answer. Perhaps the mere transparency of available properties will distill overtime into a more reliable resource.
I recently found and read an old article written by Mike Westgate, the former VP of marketing at the formerly in-business RealMassive, which discusses the availability of reliable and current data and how the consumerization trend will permeate the CRE business consumer world. He correctly cited the online “accessibility of product information, reviews, and presentation” as being highly valuable and additionally made reference to “unfettered access” to CRE data that is currently “gated”. I won’t attempt to paraphrase his article any further, but suffice it to say, his opinions are valid and may be the ultimate catalyst in bringing about a more efficient CRE market. Unfortunately, since that article was published two years ago, our CRE industry has taken significant steps backward in the availability and unfettered number of CRE lease/property data. If you’d like to check it out, here’s the link The Consumerization of #
Competitive Playing Field
“At the very least the availability of the market data has leveled the competitive playing field for everyone”. Yes and no. Yes in the sense that nearly all CRE professionals are drinking from the same data well. No in the sense that our processes remain remarkably similar as in the past. However, I will point out that with the commoditization of market data, CRE brokers and service providers are increasingly differentiating themselves via consultative practices as opposed to the transactional days of the market knowledge mindset. Today’s broker is considerably more skilled in analytics and interpretive counsel.
This brings me back to the “leveling of the competitive playing field”, a comment that always amuses me in its communistic naiveté. I don’t view technology’s purpose as being a competitive equalizer, but more a mechanism for making our business more efficient and productive. I can give the same technology to a hundred different people and it won’t take long before winners and losers appear. The playing field was leveled, but the smart ones took the time to understand the value and transition the automation into more productivity. The others simply said, “Wow, this is great. Now I don’t have to spend time doing X or Y.”
The Teams of Today
Large corporate users and REITs drive the adoption of technology in the American CRE industry. They are the ones with the perpetual drive to automate and reduce costs. They have the resources to pursue and perfect new innovations, and occasionally take chances on startup technology others wouldn’t touch. It is their need and financial fuel that powers the entrepreneurial dreamers to keep trying. Overall, they have done a good job incorporating CRE technology into their processes and are beginning to see the value. Now it’s time for that adoption rate to spread to smaller companies who can gain from the effort the big boys put into vetting the market and making the tools work.
Service providers and brokers have made tremendous strides over the last two decades as well. Real estate professionals today have an amazing array of technology at their fingertips and they have become increasingly savvy in understanding and evaluating these tools. The areas I’ve seen a lot of adoption are in mobility, marketing and social networking. It is common to see brokers showing space with a tablet in hand and electronically disbursing plans and other information immediately. Likewise, I see significant use of dynamically generated collateral and their distribution through nontraditional social outlets. But they often lag in comparison to the corporate organizations they represent in the areas of process management, collaboration, and lease automation. The large firms like JLL and CBRE continue to invest in tech resources, although I’m not at all clear on how this translates to their people using the tools that are available. The midsized and smaller firms are the ones who stand to gain the most relative to the immediate value of CRE technology in their practices, but need to accelerate their urgency in investment and adoption.
Who Wins the Game?
This is a lot harder question than I thought it would be prior to researching this article. In many ways, my findings parallel the sports analogy perfectly. The CRE professionals, especially the brokers, were a tougher, more resilient bunch 20 years ago. They were able to create their own efficiencies in a terribly inefficient time. This is probably one of the reasons tech adoption in the CRE industry has been relatively slow; they had their way of doing things and it did work, why go through a lot of time and expense learning something new?
Today’s CRE professional is better educated and trained on the employment of technology. They have learned how to juggle the information overload we all face. They are adapting by becoming better analysts of the information rather than gatherers and stewards of such. Markets once limited geographically have expanded beyond cities to nations. The opportunity has exponentially increased, but so has the complexity.
I do think we are better as an industry and at executing CRE transactions because of technology. I do not think we are yet better at what we do, mainly because our processes are still essentially the same. The CRE players of 20 years ago wouldn’t function as well in today’s environment frankly any better than a CRE player of today would in theirs. They were tougher, today we’re trained for finesse.
Ultimately it’s not about who is better, it’s about who is better equipped. Who would you choose to guide you out of an unfamiliar wilderness, a mountain man or a Navy SEAL? I know who I’d choose.
