There is one phrase that catches the attention of real estate professionals now more than ever: "Are you ready for Y2K?" Concerns over our preparedness for the new millennium have infiltrated countless aspects of our industry, but perhaps some of the most pertinent questions are being raised in regard to software, and specifically, financial analysis software. As we prepare for 2000, the real estate industry, which relies heavily on its software for financial analysis, needs to be certain that the software vendors are ready to make that leap into the new millennium, too.

"The Y2K problem is a result of software programs, including microcode and instructions in embedded microchips, that make date calculations using a two-digit date value instead of a four-digit value," says Karen Edgar, director of marketing for Yardi Systems Inc., Santa Barbara, Calif. Yardi makes financial analysis and property management software. "We, like most software companies, have been preparing for the new millennium for a number of years. We're ready," she says.

The problem arises when two-digit values, which define only the year and decade, clash with the rolling over of our calendar on January 1, 2000. "As we go from 1999, represented as '99,' to 2000, represented as '00,' computer systems may misinterpret the '00' to be 1900 or 1800," Edgar explains. Because mathematics define "00" as less than "99," programs may produce an incorrect result as defined by human expectation, or fail because of a violation of mathematics, such as division by zero.

Why did software companies use two-digit years initially? "Because of the need to optimize computer resources, using a two-digit year instead of a four-digit year offered significant resource optimization when CPUs, memory and disk space were at a premium 20, 30 and 40 years ago," says Edgar."We've come a long way since then, and resources are much more cost effective and readily available."

The Y2K problem is not just a matter of changing a few lines of code in a program. There are many processes throughout multiple industries that will require hardware changes for those processes that are controlled by embedded microchips. Additionally, many companies over the years have developed software internally rather than purchasing off-the-shelf. These companies are now faced with examining lines of programming code that could be years old, not particularly well documented and altered by many different employees over the years.

In fact, San Francisco-based Bank of America, the fifth-largest U.S. bank, recently reported that it has 1,000 people working to examine 200 million lines of code. They have succeeded in altering only 35% of the code, and the estimated price tag for the job is $250 million. That is only one company. The Federal government estimates a $3.9 billion price tag to fix the problem. Globally, mending the Y2K problem undoubtedly will be a costly, labor-intensive task.

Obviously, it is important that all software, including financial analysis software, become Y2K compliant. Yardi products achieve Y2K compliance by providing a four-digit year within the software. Dates are entered and displayed in the mm/dd/yy format but stored as mm/dd/yyyy in the database. The storage of the four-digit year provides for proper multi-century identification and, depending on the set-up option selected, a user may choose to enter and display a four-digit year, Edgar says.

Steve Kremidas, senior director in charge of real estate management products for SS&C Technologies, Windsor, Conn., says SS&C's software products are ready for the new millennium as well. "Cashflow projections often are done 30 years ahead, so we had to prepare for the year 2000 a long time ago," he says.

At SS&C, all test scripts and plans represent software that would be affected by the new century, he says. Date libraries need to be consistent with the Y2K process and all database fields and screen displays have to be shown in four-digit years.

"We are fortunate that we have a leg up on some other software groups," says Elazar Katz, vice president of DFA (Dynamic Financial Analysis) Products, a unit of SS&C. "We're projectionists by nature of our software programs, so we've been looking at the Year 2000 for a long time." DFA has been testing its reports by taking dates beyond 2000 to determine if the data proves correct and achieves expected results.

Clearwater, Fla.-based DYNA Software & Consulting Inc. also credits forecasting tools within the company's software for the company's Y2K readiness. "It's a relative non-event for us," says Lewis Foshee, vice president of marketing at DYNA. "Even as early as the 1970s and 1980s we were prepared with four-digit date lock."

Companies that have amended their products to be Y2K compliant now focus on the next challenge the financial analysis industry presents: providing sophisticated software for the new millennium. "The exchange of methodologies and technology is happening more rapidly, so a more sophisticated product is needed," Foshee says. "The trend has really intensified since the institutionalization of real estate began with the REITs as they amassed hoards of properties."

That created a need for faster, more accurate information processing. Coupled with the volume of information processed by the real estate industry, simpler programs could not handle the load.

DYNA for Windows allows remote users of the Web-enabled valuation and forecasting software to perform discounted cash flow and portfolio analysis over the Internet using only a browser equipped personal computer. Combining a state-of-the-art web-based application with a native open database platform ensures that DYNA for Windows users can always access the latest data and most advanced tools to support informed, sound investment decisions.

"The cash flow projections that remote users build and use, in general, would be maintained on their company's headquarters network server," Foshee explains. With DYNA's new Microsoft SQL server-based financial analysis product, an international property acquisitions officer can create, store and prepare acquisition reports for a property projection on the same server headquarters personnel use for their valuation and DCF property projections. "This means that the roaming acquisitions analyst could also have access to projections and valuations for comparable properties in the market of the property or portfolio being acquired," Foshee says.

"There is so much more information out there as industry professionals find themselves 'data-mining,'" Edgar adds. "Users need the right tools to slice and dice information to get to the meaningful data."

"Our clients have always demanded sophisticated software systems, but now, more than ever, they are turning to us for products that can provide top-notch performance for the new millennium," says Ronnie Dean, managing director, strategic development for ARGUS Financial Software, Houston. In order to meet the high expectations of its clients, ARGUS has added new products and features; the company also meets continually with clients to garner feedback that will help ARGUS design products that reflect user-generated stipulations.

"Clients drive the need for newer, more sophisticated products," says Dean. "We've had to stay on top of our customers' needs to meet their requirements."

Kremidas agrees. "We have to keep up as the technology increases," he says. To do that, SS&C has created software packages like Finesse 2000, a financial modeling and decision support system for property/casualty insurance executives. The system tests a portfolio's behavior under thousands of scenarios for mortgage rates, rent rates and vacancy to detect the likelihood of default, he says.

"With this analytical tool, an equity or debt holder can estimate the likelihood of infinite possible variables in order to determine if a property/loan will be self-sufficient or will become problematic in the future," says Kremidas.

Many software companies are prepared for the millennium. "The Year 2000 problem is unique because it is global in reach, and there are no 'time outs,'" says Edgar, adding that the problem does not only affect software. "It is important to examine a variety of operational processes that could be impacted at the turn of the century," she says. "But don't spend too much time examining the options; just get the job done now."

Getting the job done by solving Y2K dilemmas is certainly the essential task at hand. But many vendors do not see Y2K as a problem, and place a positive spin on the issue.

"Anything that makes people take a good hard look at the way they do business in systems and software is good," Foshee says. "That's why Y2K is a good thing in many ways. Anything that makes people take a hard look at the way they do business in systems and software is good. It makes them ask questions they might not otherwise consider."