We all know that great real estate technology adds value to your properties. Real estate tech can make your properties easier to manage, more attractive to tenants, and can lower operations costs. However, in order to understand the ways that real estate tech can increase your property values, we need to understand how property is valued.
To get a better sense of the real estate investment landscape, the BuiltWorlds Real Estate Tech Forum met with Gunnar Branson, the CEO of The National Association of Real Estate Investment Managers (NAREIM). NAREIM provides a forum for institutional real estate investment managers to discuss operational and strategic issues facing the industry.
Branson and the other Real Estate Tech Forum participants provided some surprising insights about the real estate investment world.
We don’t actually value property as accurately as we should
“Investors are making decisions without all the information they should have,” Branson admitted. “We are still reliant on ‘gut instincts’ and estimates. Although we know the expenses and cash flow of an existing building, much of the residual value is determined by expert valuations based on comparable sales, vintage of the building, and quality of the in-place tenancy. We don’t understand everything that is driving tenants to lease or continue leasing in a building, nor do we fully understand what those tenants really want.”
We need to understand our tenants better
According to Branson, “anyone who understands their customers better is a winner. In real estate, we tend to think, ‘that’s a good building. That’s a bad building.’ Instead, we need to understand, ‘who is this building good for?’ Owners tend to confuse building quality with value. The most beautiful buildings don’t always have the best cash flows. Just look at Manhattan! There are properties there that in any other market would not be as successful. For certain tenants, build-quality is not the highest priority.”
Real Estate Tech Forum participant Nick Foussianes, the Corporate Managing Director with Savills Studley, responded to Branson’s call for owners to understand their tenants by highlighting the difficulties. “I don’t think tenants are wholly data-driven; image and qualitative factors also play a major role” Foussianes stated. “In the end, it’s about feeling. I don’t know how you measure that.”
As a self-proclaimed “data nerd,” Rebecca Haass of Entrigna believes it is possible to collect actionable insights from qualitative data. “At Entrigna, we’ve made solutions in the past on unstructured data patterns (like Twitter feeds, blogs, etc),” Haass related. “But, I think the biggest challenge will be that the real estate data isn’t being recorded consistently so there’s nothing to ‘learn’ from. Once that information is recorded consistently, I think there will be patterns and insights that will be extremely valuable to not only learn from but also to sell to investors.”
Real estate investment is experiencing a transformation
“Despite the way this industry has behaved for the past 50 years, fundamentally, real estate is not just a deal business,” Branson asserted. “Buildings are, by their very nature, multigenerational assets. The last two decades have been all about the steady institutional investment into our top dozen markets, the shift in thinking, operations, and transparency to reflect that investment is just beginning.”
The shifts in the real estate industry present a great opportunity for real estate tech. The more real estate owners treat properties as the multigenerational assets they are, the more they will want to invest in improving them. Furthermore, IoT devices have the potential to provide owners and investors with the qualitative feedback they need to more accurately value properties. In the hurricane that is contemporary commercial real estate investment, real estate tech may be the eye of the storm.