Like the engine of a 2400-baud modem, commercial real estate has been tepid and slow to act on technological issues. But, inspired by the need to become more efficient and competitive, technology consultants say brokers and other commercial real estate professionals are looking for ways to make their lucrative and complexeasier to manage and close.
"I'd say 1999 is the year the real estate industry began to understand the importance of automation," says Jim Young, president of The Jamesan Group, Carlsbad, Calif., and manager of Realcomm.99 - a high-tech trade show for real estate professionals (see sidebar, p. 50). "Everybody realizes they've got to make their operating models efficient," he adds.
Mothballing the info silo More than ever, industry players are looking for ways to streamline systems and integrate databases, and they are exploring ways to share information in-house and among clients and vendors. Claude Werner, national director of real estate research for Deloitte & Touche's National Center for Applied Real Estate Research & Technology in Atlanta, cites data integration as the next logical step in the industry's tech evolution.
"Right now, for the most part, those databases don't talk to each other," says Werner. "The function of these new intelligence systems is to integrate that data at a level to let top executives make decisions with all the data coordinated simultaneously. It's eliminating silos of information."
Seeing these numerous ways to expand how data can work, Werner adds that commercial real estate firms are also more willing than ever to go outside their organization in search of technology solutions. "They are hungry for solutions," he says. "They are more willing to hire firms like ours than to build in-house."
The state of technology in commercial real estate is much different than a year ago, Werner says, and much of that relates directly to the capital crunch that took place in the fall of 1998. That level of unpredictability has commercial real estate companies working even harder to be more efficient.
Decreasing costs for hardware and software are making this new computing model easier. Commercial real estate companies have historically spent about 80% of their technology investment on infrastructure and the rest on making business more efficient. That has flip-flopped. Now, Young says companies are able to focus 20% on technology infrastructure and the rest on making it work for them.
The Y2K phenomenon also has prompted companies to begin upgrading their property management and accounting systems. As they evaluated whether there were any concerns about the calendar change, many companies reviewed the systems they had in place and made decisions about improvements.
"That's almost playing catch up," Werner says. "The next step they are considering is how get ahead of their competition. Part of that is by being efficient in what they do, but not all of it.
"Part of it is to think smarter and to make sure that they're not just accounting for things, but they are making better business decisions," he says. As a result, there is a desire for systems that merge business intelligence information and bring together data that have traditionally been separated in different databases.
Extranet technology, according to Young, is another way that commercial real estate is broadening its high-tech thinking. As a networking tool that uses Internet technology to make information widely accessible - within an organization and among clients and vendors outside the company - Young says extranets give all the players access to project and workflow charts, files, spreadsheets and photographs.
"They allow your client to get into your world," says Young of extranets. This is a little different from the Internet, which is simply the public access to the World Wide Web, and intranets, which are networks strictly within companies.
Back to basics If commercial real estate is making progress and changing its high-tech direction through the Internet, extranets and database technology, experts cite a need to get back to some technology basics - areas in which the commercial real estate industry still needs growth. No one in commercial real estate disputes the need for integrated systems and software that are easily navigated and incorporate the voluminous details necessary to negotiate.
Phil Loftin, senior vice president for Boston-based software firm REsolve Technology Inc., says the creation of open-database products that would enable easy electronic transfer and update of data from one system to another, along with data warehousing concepts, are revolutionizing the industry. "These data warehouses can also facilitate the generation of custom reports designed specifically for individual users," he explains. "While many software vendors would suggest that their products already provide a seamless transition, the reality is that there are no enterprise-wide solutions available."
Loftin notes that there is change afoot in the industry, though. Increasing use of the Internet and intranets - networks within companies that connect different offices, buyers, brokers, sellers and real estate users with Internet technology - is changing how information is accessed. But Loftin says that is secondary to the need for a system integration solution that is widely accepted, which he believes is still one or two years away.
Consolidation among real estate software vendors - such as the acquisition by Houston-based ARGUS Financial Software of Clearwater, Fla.-based DYNA Software & Consulting - emphasizes the need for integration. ARGUS develops software pertaining to the analysis of commercial real estate finance, valuation, acquisitions and CMBS issues. DYNA's product is also an analytical tool focused on equity, construction development and REITs.
Computing: easier, faster, safer Ron McComas, vice president of marketing for Management Reports International (MRI) in Cleveland, confirmed the increased interest in centralized computing environments. His company develops software and outsourcing solutions for the property management industry.
"One big change we're seeing is the shift from a distributed processing environment to a centralized environment, primarily because between telecommunications technology and software technology, [a centralized system] now makes that a very cost-effective way to handle remote sites," McComas says.
The other clear trend, adds McComas, is the use of industry-standard relational databases that will allow a much easier integration of diverse software packages. "We see a lot of our ancillary software - financial analysis, CAD, facility management software - being produced on platforms that are open in nature and can easily access to others," he says, adding that transfer of information then becomes much easier, faster and safer.
In some cases, commercial real estate companies are opting to send IT departments to someone outside their firm. Outsourcing the technology allows the real estate professionals to remain focused on their business.
The outsourcing movement has a new twist. Outside firms like MRI can host certain applications for their clients. For example, a database could be housed and maintained outside the company, and while the real estate firm wouldn't have responsibility for the hardware, software and maintenance, it would still have access to the information and the ability to perform transactions.
Internet-powered software Although application hosting is growing in popularity, most software vendors are focused on developing for the Internet. Dallas-based CTI Limited Inc. has a suite of Internet applications useful for organizations with remote offices. The Internet is a cost-effective means of transport for real estate transactions, says Craig Lofton, CTI's executive vice president in charge of sales and marketing.
"If you look at our leasing system, end users need the ability to transmit leases through the Internet, pay suppliers, send notifications and bank transmissions of cash receipts," Lofton says. "They can gain efficiencies. That's why people buy computers. Technology is not about technology itself, it's about gaining a competitive advantage through information and scalability."
Lofton says his clients are becoming more technologically savvy, but in subtle ways. "It's going to be like a tsunami," he predicts. "It's going to happen quickly. Almost every one of our clients has an e-business strategy. Ultimately they will still manage the bricks and mortar. But each are exploring how the Internet will impact their business."
Walnut Creek, Calif.-based ASI International has developed what it calls the first Web-enabled software for corporate real estate management. The product, CorpSuite CONNECT, enables users to access real estate tracking features from a standard Web browser. ASI says the product's technology reduces infrastructure and maintenance costs for users because they have the option of renting the product on an as-needed basis instead of purchasing it.
"We came up with a rentable application where basically for a one-time fee you can log on to a hosted environment or an application that's hosted, totally secure, and access that information," says CEO Mark Lambourne. "And they pay just a monthly fee and it doesn't require any IT involvement."
Web-enabled technology is making its way through other company's applications as well. ARGUS is studying the e-commerce applications for its own products cautiously, and the company is studying the potential that surrounds Web hosting facilities. "ARGUS, which develops products for financial analysis, is planning a variety of Web-enabled enhancements," says Ronnie Dean, ARGUS' managing director for strategic development. "Though we will not announce features until we are sure of their stable delivery, we do intend to provide our customers with Internet-related technology based on their work flow processes and directly tied to our applications and reporting engines."
Timberline Software Corp., says its products allow users to track projects from dirt turning to ribbon cutting. The company, located in Beaverton, Ore., supplies accounting and cost-estimating software for the construction and property management industries.
The company's Gold CollectionAE for Property Management integrates with Timberline's Gold CollectionAE for Construction Accounting, while Precision CollectionAE for Construction Estimating software is especially popular with real estate developers, says Liz Jacobs, the company's product marketing specialist.
Jacobs adds that integration makes it possible to track every stage of development and manage leases in the same set of books used for construction and tenan t improvement work. "While our Gold Collection is a good fit for developers, we're also selling the software to an increasing number of third-party managers and property owners who aren't involved in development," says Jacobs.
Timberline's property management sales increased 59% in 1998 compared to 1997, and Jacobs says current trends suggest that 1999 will be an equally strong year. The company's products are Web-enabled, and the company spent nearly $9 million on R&D in 1998. But like other industry vendors, the company takes a conservative approach to new technology to avoid turning its commercial real estate customers into guinea pigs.
"There is indeed a lot talk these days about e-commerce," says Jacobs. "While we are adding certain e-commerce capabilities to our products, we are finding some resistance across our client base to becoming dependent on e-commerce. For example, many are not ready to process all banking transactions across the Web."
Yardi Systems Inc., a Santa Barbara, Calif.-based software firm, has found its Web-related products to be popular, says marketing director Karen Edgar. Yardi makes property, asset and financial management products and services. Voyager, a product that Web-enables Yardi's other programs, has definitely found an audience.
In March, Yardi announced its e*Banking product, which integrates with Yardi Property Management and enables Lock Box processing for a more rapid tenant receipt process. Statement messaging can be customized, and check clearing features improved cash control.
"The response has been excellent," says Edgar of Yardi's new product. "Electronic commerce is a widely accepted form of business, and e*Banking brings that environment to Yardi clientele along with improved banking cash management controls."
The commercial real estate market in the United States has prompted Canadian company NewStar Solutions Inc. to set up its U.S. headquarters in Chicago, which is expected to open this month.
NewStar develops integrated enterprise information management solutions for the commercial real estate industry and has spent the last year or so focused on application development "that would allow NewStar to be a single-store provider," says Eva Freud, executive vice president of marketing.
"Our goal is to provide as much of the software as we can without having to depend on other vendors and interface with other products," Freud says.
The company's future development efforts will be focused on Internet-related products, and NewStar has budgeted $10 million toward its development in addition to the more than $4 million that the company spends annually. Freud says she expects new Internet products to be announced in early- to mid-2000.
And while the Web is a big part of NewStar's strategy, Freud still appreciates the industry's needs for systems integration. "Everybody is so focused on the Internet, a lot of companies may be losing sight of the basics," says Freud. "You certainly can't take for granted the fact that everyone's products are completely interactive. And enterprise-wide, a lot of the integration of products doesn't work."
An AMB-line to integration Rather than outsourcing or bringing in consultants, San Francisco-based AMB Property Corp. - with more than 64 million sq. ft. in its portfolio - decided to create its own way to keep everyone in the loop. AMB started its automation adventure 10 years ago.
Craig Severance, AMB's managing director of new initiatives and technology, started tinkering with some off-the-shelf software and started the Open Issues Database that enables more than 180 separate databases to cross-reference each other and create real-time project files used by every person involved in a property deal.
As an information-sharing tool, AMB's system is an important part of eliminating risk in the due diligence process, which gives investors great peace of mind. "[Our] Open Issues Database allowed the creation of an electronic legal pad, if you may, into which issues related to the proposed investment could be deposited," says Severance. "And once deposited, the issues could be allocated to the appropriate professional for resolution, so it's quite dynamic. It grows and shrinks in size. By the end of the due diligence period, the goal is all issues that are material have been resolved before we close on the transaction."
AMB's system was Web-enabled last year, and it tracks everything from small-lease amendments to structural issues to estoppel collection. Severance says Web technology has made the Open Issues Database product more consistent.
"It's more digestible for lay people because most people are becoming very agile in using a Web browser," he says, adding that AMB's next step is to expand the system's capabilities. "We are in the process of investing quite a bit of money in technology over the next 12 months, migrating to a database system that's much more robust. We need faster servers, more bandwidth and a more scalable platform. And, we'll completely revamp our Internet presence and intranets and extranets. Everything we do will be Web-enabled."
Real estate to shine online? There is a big difference between incorporating Web technology into software and actually using the Internet effectively to grow business. And while the Internet is a hot topic in every industry, it is not yet a staple in the commercial real estate marketing plan.
"It is absolutely not a strategic imperative today," says Peter Pike, president of PikeNet, which publishes a Website with more than 3,000 links and the free PikeNet Dispatch. "It's not embedded yet, but it's getting there."
And Pike says he does see a growing cadre of industry professionals making the time and commitment to the real secret of the Internet to develop real connections with their customers. "The Internet should be used to strengthen your connections with customers and clients," he says. "That is an expensive undertaking."
"That is inexpensive, but once you start building in connectivity, we're talking about intranets and extranets and the exchange of information privately," Pike says. "That's a whole different level of investment. But you are more powerfully poised to interact with your clients and customers."
Marketing's 'Net' effect The commercial real estate industry does have bragging rights to the Web world created by services like LoopNet Inc., which claims to be the Internet's largest commercial real estate listing service representing more than 80,000 commercial real estate professionals.
Established in 1995, LoopNet has experienced 400% growth in the number of listings for sale and number of listings for lease in its system over the past year, says Gina Clark, vice president of marketing. The number of new users has grown by 300% over the past six months, and the value of the property in LoopNet's database has grown more than 300%.
"The bottom line is that LoopNet and this market online are taking off," says Clark, adding that the site recently introduced LoopLeads, which delivers commercial property leads to users via e-mail based upon their search criteria. In May, LoopNet rolled out LoopLender, which is an online loan originating process.
Despite industry concern that Internet services could displace the intermediaries populating the commercial real estate, Clark says LoopNet's purpose is to streamline the process. The company's executives are experienced real estate professionals.
"Our system was developed for brokers, and that's why we encourage our customers to be on the system every day," Clark says. "Then you'll be a master of the Internet, and you'll be a master of your business."
Comps.com is another site devoted to the commercial real estate industry (see "Property information war set to erupt," NREI May 1999, p. 30). The company went public in May and is a national provider of comprehensive commercial real estate sales information both online and off.
And a newcomer to the Internet is propertyfirst.com Inc., an Internet real estate technology company which launched in June. The company is just beginning to see the results of its direct-mail campaigns, but in true Internet style, can already illustrate the activity on its site.
The company initially averaged about 10,000 hits a day, and that doubled around mid-July. Visitors to the site are spending about 20 minutes there, according to Don Miller, propertyfirst.com's executive vice president and chief operating officer.
"We have designed our service to be broker-friendly - to bring buyers and sellers together quickly," says Miller.
Like LoopNet, propertyfirst.com is committed to the broker's continued role in commercial real estate transactions. Miller says a hallmark of the site is the Buyer's Database, which features accurate and updated investment criteria from more than 6,000 investors.
"We electronically match brokers with the Buyer's Database which includes buyer's criteria," Miller says. "About 75% have been open and responsive to sharing their buying criteria. That's a phenomenal percentage."
The 'next-to-body' experience As real estate executives and related companies continue to burn up the Internet airwaves, The Jamesan Group's Young cites bandwidth as one of the hottest issues for commercial real estate companies. He notes that, with cable providers and other telecommunications companies providing bandwidth to the general public at greater rates, real estate companies need to keep pace. He recommends that every real estate professional have high-speed Internet access by year end.
Outside the office, most professionals probably would not be caught without their next-to-body wireless devices such as cellular phones and pagers. Nextel Business Networks, part of McLean, Va.-based Nextel Communications, provides commercial real estate companies with digital cellular and paging. Nextel also offers Nextel Direct Connect, which is a digital two-way radio feature that allows users to communicate with other members of their teams as they would using a regular phone. This allows companies to save on cellular phone charges.
Beyond personal use, there is increasing emphasis on the opportunity telecommunications presents to building owners and managers. They are faced constantly with opportunities to evaluate the telecom infrastructure available to their tenants.
Chicago-based U.S. RealTel is a landlord of telecom access rights to the telecommunications industry. The company has subleases at 6,000 different properties for telecom access and helps negotiate for new antennas for wireless networks, generating additional income for property owners.
Bud Blinick, U.S. Realtel's senior vice president of site development, says while the real estate industry can move very slowly with technology, telecommunications moves at the speed of light and sound. "Telecom companies are sprouting up to compete not only with the regional Bell companies but with each other, and their services keep expanding," he says. "Building owners recognize that for the most part, their buildings are obsolete as far as the services they provide, and they know that eventually they have to address the issue of how to deal with it. Otherwise, tenants will demand services or move to buildings where they are available."
Tenants want more bandwidth, better service and the ability to videoconference - all services that must be made available through the telecommunications infrastructure in the building. "The owners are the ones that either allow or disallow them," says Blinick. "They also want to maintain control of who comes in and how they access their tenants. But they also know it's not their business, so they are outsourcing those services to companies like us to grant access to the telecoms."
Blinick stresses that outsourcing management of telecom access allows commercial real estate companies to focus on their own business. "The bottom line is those who haven't addressed this will be constantly called upon by the telecoms because they have to address it eventually," he says. "Part of the problem is they don't understand the telecom industry, and once they realize they never will understand the telecom industry, they'll outsource it to companies working in their behalf to arrange for access to telecoms."
Legislation aimed at mandating building telecom access has prompted loud responses from the Building Owners and Managers Association International (BOMA) in Washington, D.C. (see "BOMA leads fight against mandated telecom access," NREI Web, June 15, 1999). BOMA has expressed its concern about forced access, in which telecom service providers take space within office buildings to install equipment and wiring for free or at low, government-established prices. BOMA announced support in July of the Federal Communications Commission's plans to examine the marketplace for local telecommunications services.
In late April, Florida legislators denied telecom companies mandatory access to commercial properties, which would have allowed telecommunications providers unlimited access to the properties. The mandatory access provision did not require compensation for the owner.
Mandatory access bills have also failed to pass in Colorado, Virginia, Indiana and Louisiana, and California legislators are expected to consider similar proposals this year. Ohio, Connecticut and Texas have enacted mandatory access laws.
Taking off the high-tech blinders For BOMA and for the rest of the industry, healthy competition is certainly a top-of-mind issue. And Scott Rickard, executive director at real estate services provider The Core Network, Newport Beach, Calif., does not question whether technology is a competitive issue for commercial real estate companies.
Rickard has adopted technology resources for its 62 CORE member firms to use, including an intranet and Internet-based training. Rickard says he sees the business cycles of technology savvy companies changing, and he's concerned commercial real estate will continue to lose pace.
"There are too many people in the industry with blinders on," he says. "It's not our everyday competitors we need to think about. It's the Arthur Andersens and the Ernst & Youngs that will be our competition. I think the day of the transaction broker is coming to an end."
Rickard adds that, while professionals throughout the industry continue to operate by the handshake, the momentum of the Information Age will eventually be too much to ignore, "I think clients will require greater levels of sophistication, and that will force those that survive to adopt a new business model," he says.
Long-term technological advancement requires forward-thinking leadership, says Rickard. "We've got organizations and firms that are very large firms that a year and a half ago had no desire to change their business model relating to e-mail. They've been forced to. They didn't do that because it was the best way to do business. They were doing it because people were asking, 'What's your e-mail?'"
"I think the problem is we're in an incredible economy, and a lot of people still see technology as something that annoys them," Young says. "A large amount of practitioners still are in the old paradigm and they're not even making an attempt."
Both gentlemen point out that, even if a company is making investments in technology, if their people are not learning how to use it is a significant waste of time and money.
"It's this widespread access to information that makes them nervous because they have previously held that information in a small group," says Pike. "They look around and realize if they connect with people digitally they are really partners. It's one thing to say we're on a team and for me to put my arm around you.
"But when you put out e-mail and you know what everyone's doing, that's totally different," he adds. "The third reason is money. If you develop these digital tools, do you think they're cheap? No."
Pike says change - for a business which relies on quick response and in-depth analysis for deal consummation - is eminent. As the original slow modem has made quantum leaps and bounds in speed and efficiency, so can commercial real estate. "The industry is changing, it's just slow," he says. "They're too smart not to change." >TI Keeping up with high-tech times >BY J ohn Bell
Technology's impact on commercial real estate operations highlighted the Realcomm.99 conference and Exposition June 17-18 at Chicago's Hyatt Regency O'Hare Hotel.
A capacity crowd of more than 750 commercial real estate professionals attended the two-day event, billed as the first paperless conference and the first of its kind for the commercial real estate industry. It was organized by the Society of Industrial and Office Realtors (SIOR) and The Jamesan Group, a Carlsbad, Calif.-based real estate technology services firm.
The conference was designed to provide a combination of general education and break-out sessions, according to Bonnie Gottlieb, president of SIOR. "People often don't go to conferences because there isn't anything there for them," she says. "In this case, there was."
Educational sessions included: Digital Real Estate Transactions; Digital Mapping and Commercial Real Estate; 360-degree Internet photography; The Future of the Commercial Multiple Listing Service; The Future of Lending and Title on the Web; and Property Management 2000.
"In an era where the industry is under increasing pressure to deliver results, technology is raising the bar in commercial real estate," says Gottlieb. "The products and ideas discussed at Realcomm.99 are fast becoming standard operating tools."
Jim Young, president of The Jamesan Group and show manager, agrees, pointing out that the commercial real estate industry could seriously handicap itself if it does not adopt technology-based business processes.
"In a list of the top 10 industries that have converted to technology, I'd rank real estate second from the bottom," says Young.
Gottlieb adds, "As recently as two years ago, commercial real estate did not embrace technology - it has only happened in the past 12 to 18 months."
Both agreed that a primary reason for the reluctance to use technology is that commercial real estate historically has not wanted to share information, relying on entrepreneurship and individual deal making. "Now our members are being forced into technology in order to meet the needs of clients who are demanding technological capability from practitioners," Gottlieb says. "If they don't get it from one source, they'll go to another."
The industry is starting to catch up, though. Gottlieb points out that 1,450 of SIOR's 2,150 members have e-mail today, compared with only 400 e-mailers among 1,800 in 1997.
Realcomm.99 reflects a movement within the industry to streamline its operations, the two agree. "We couldn't have had this show two years ago because the market wasn't ready," says Young. "Now what we're seeing is pent-up demand. It's like a farmer going from a shovel as his main earth moving tool to a tractor."
Strong relationships will be required to integrate technology into the industry, he continues. "Technology is providing the tools - tractors versus shovels. Clients will go to the real estate professionals who have the better tools and can give them what they want."
Gottlieb pointed out the advantages of technology in compressing time and paper work. "You still want to see the client but instead of going back 20 times, two may be enough and the rest can be handled electronically," she says. "You can set up a project filing cabinet and give clients the password to get into the files and see what's going on, enormously facilitating a transaction."
SIOR and the Jamesan Group started planning Realcomm.99 18 months ago with the conviction that technology was gathering momentum, and the commercial real estate industry had much to learn. "We wanted to get people together and stay ahead of a very fast-moving train," says Young.
With the growing impact of technology, real estate professionals, increasingly, are choosing electronic transactions because of their functionality and cost effectiveness, Young says. Also, electronic transactions serve clients' needs more efficiently and enable the smaller independent to be on a level playing field with larger operators, Gottlieb adds. And with the consolidation in the industry, companies can pool their resources and achieve economies of scale, she says.
What about confidentiality problems? Neither Gottlieb nor Young think privacy is a problem, saying adequate safeguards are in place to protect confidential information.
On the subject of computer literacy, Gottlieb says she considers it an absolute must today for real estate professionals. Young, though, takes a different view, saying good business process judgment is needed more than computer literacy. "In the future, Web phones and TV sets with built-in Internets will supplant the need for computers," he says.
Technology will improve business operations but nothing will eliminate face-to-face dealings, Gottlieb commented. "Relationships and trust are the backbone of the industry, and that won't change," she concludes.