For years, analytical software for financial institutions was much like the companies that used it: staid, unexciting and methodical. No more.

A new wave of innovation is engulfing the sector as more and more financial firms seek a firmer grasp of what's occurring not only within their own portfolio but in the real estate marketplace as well.

"There is an increasing challenge for financial institutions to be more nimble, more reactive and better able to move with market trends," says David E. Voigt, vice president at Northbrook, III.-based Quantra Corp., formerly Melson Technologies, a firm known for its Pro-Ject offerings. "In order to adjust and manage their portfolio in response to the ever-changing market and financial risks, they have to have very timely, accurate and usable information on their investment portfolios."

Accordingly, software developers are reacting with new innovations, ranging from more openness between different software systems to expansion of Windows-based products and to better utilization of up-to-the-minute data within the same organization. New, snazzy software is being offered to financial institutions with new avenues of more instantaneous communications becoming increasingly more popular.

"Real estate lenders are closely analyzing the role of real estate financial analysis software in their risk management, underwriting and loan monitoring activities," says Lewis M. Foshee, vice president of marketing at Dyna Software in Clearwater, Fla. "They are implementing financial analysis systems capable of adapting to the needs of personnel in multiple departments yet functioning as an integrated system."

Facing the risk management task

The "big picture" that real estate financial analysis software is intended to ultimately address, Foshee and others say, is risk management. "No longer are lenders comfortable with being unable to answer questions like `What would happen to the future performance of our real estate loan portfolio if office market rental rates in Southern California declined by 15%?'" Foshee says. "They want to know the answers to these types of questions before the hypothetical event occurs. Real estate lenders have reamed that to reduce risk in their real estate loan portfolios, they need to understand the forecasted performance of their loan collateral and measure how collateral property, and competitive properties, have actually performed."

Foshee and others note that the data needed for risk management may originate in different formats or may be geared toward a different use from one department to another. Approaches such as Dyna's data warehouse standardizes these formats so risk can be analyzed effectively and shared between departments.

Compatibility is key

At Argus Financial Software in Houston, for instance, the word most often used nowadays is openness, more specifically Open Database Connectivity, or ODBC. "Early on, we recognized that the most important direction that the financial analysis world needed to go in was ODBC," says Ronald Dean, managing director at the firm. "Argus is the first to release its OpenArgus, our ODBC-compliant solution for data to be used by any data system and/or presentation application such as Microsoft SQL Server, Microsoft Access, Crystal Reports and others."

According to Dean, the OpenArgus system fulfills a major requirement of the large financial institutions data transportability. "Large institutions want the ability to use the data from Argus their way, not our way," Dean says. "They want to feed their asset management systems, large portfolio systems, internal reporting systems, report writers -- all these financial systems that didn't used to talk to each other -- to and from an open database. With OpenArgus, data can be part of a matrix of applications at banks, insurance companies, financial institutions and so forth. It's a seamless operation."

In the past, Dean says, financial institutions had to work around various systems because one did not interact with others. "You'd have to import and export data. Say you have, an internal asset reporting system with a set of reports that you are required to inform the directors about the performance of assets. In the past, companies would have to take the data out of the system that generated the numbers, then make the spread sheet work properly, then link it to another of their data reporting systems -- go through all these steps to `normalize' the data, so it would feed into an internal data system. With ODBC compliancy, this linking of data systems will become far easier, more seamless, less prone to error because you can directly link rather than having to adjust the system. It's a lot easier, a lot more accurate and a lot more cost effective. The eventual goal is `single point of entry-multiple use of data.' Argus for Windows is the first program of its type to provide this functionality."

Bob Fahey, senior vice president of sales at Yardi Systems in Santa Barbara, Calif., says that data, once used by only one person or one department, is now in demand by many. "In our asset management system, we have software that replicates some of the functionality of the Argus, DynaLease, Pro-Ject applications," he says. "Those applications focused on analysis projects. What's opening a lot of doors for us is the financial institution's realization they need to not only pull current investment portfolio and get an IRR, but they need information fast. Say one adviser sinks $500 million into shopping centers. They want to know how that will affect the entire investment portfolio."

For Yardi Systems and others, this means seamless integration -- quickly. "For pension fund advisers, for instance, there is a question of timeliness," Fahey says. "Consultants usually get information a month or so after a quarter ends, and it takes another couple of months to report to the institutions. By that time, you could have problems, and it's like trying to close the barn door after the horse is out. Financial institutions today need to react quickly to the marketplace in order to make adjustments, and we're helping them do that."

Part of the reason for this change is that financial institutions were stretched very thin during the 1980s. Now, the real estate market has come back, companies need to do business faster, better and more efficiently. "All those working with outside companies -- mortgage bankers, property managers, appraisers -- need to have their technology work comfortably with those companies so they can decrease the cost of doing business," says Quantra's Voigt.

Quantra's Pro-Ject for property valuation, which helps forecast cash performance of multitenant properties and conducts value analysis, has come out with Pro-Ject for Windows 1.0. "Many customers are working with various software versions, and we said, 'We will protect your investment in training and industrywide standard compatibility that Pro-Ject is known for by not significantly changing function of product,'" Voigt says. "Pro-Ject for Windows, for current Pro-Ject customers, has no learning curve. If they knew how to use DOS, they can step right in. Also, there is no conversion risk; the data file structure is identical to all previous versions."

Information integration will be critical in the years ahead, Voigt says, as financial institutions demand to know the effect that certain market changes will have on their bottom line. "Say a hurricane hits Florida, people want to know what effect it would be on their portfolio," he says. "Financial institutions need to have all the information they can to make the critical decisions they need to manage their investments."

John K. Wood III, president of Kansas City-based First Realty Advisors, which develops software solutions to help managers query and analyze commercial information under the RealWorks banner, says: "As the information age arrives, information is becoming a commodity with the ultimate value being created by the expertise and ability to determine what collective information means rather than simply possessing it. The prudent real estate executive must seek ways to leverage new technologies to provide better services at competitive prices."

Wood notes that RealWorks Software systems deal with appraisal divisions and allow better management of the appraisals that the institution has ordered and keeps track of who's doing what work. "I think some of the over-riding influence is that there has been, over the last few years, a lessening of regulations that have enabled financial institutions to begin much more of their valuations inhouse, where-to-fore they had to subcontract virtually all of those valuations to third-party appraisers," Wood says. "As that has happened, competitive pressures -- trying to force the appraisal department in financial institutions to perform services at lower budgetary dollars -- caused banks that are system driven to look for a way to automate their systems."

Meeting demands

Still, one of the biggest changes in the last couple of years that has occurred in the industry is the demand for Windows-based products, says Kevin Pirie, vice president of Landware Systems Corp. in Vancouver, British Columbia, which publishes and markets Leaseworks Investment Property Analysis Software, a lease-by-lease analysis and graphics program for real estate professionals. "Virtually all packages had to migrate from DOS to Windows," Pirie says. "The biggest change was that all the publishers have had to make the migration, and some are still struggling with it."

Improved connectivity to other products such as accounting and property management systems and the ability to transfer data through wide-area networks, as opposed to just over local networks, are some of the other changes occurring in the industry.

"Five years ago, a company had one product, and one person used it and no one else," Pirie says. "Now, you'd have a reservoir of data, and someone else is pulling it up. Companies want to only enter data once but get far more use out of it."

Cliff Fischer, president of Dallas based Fischer & Co., which develops software for corporate real estate portfolio management systems, notes that one of the factors affecting the financial institutions industry today is lease analysis. The structure of lease deals has changed, he says, adding that in the 1980s, transactions were structured around present value because of the free rent and cash concessions that were offered as money tightened.

"Now, a lot of the work is build-to-suit, involving creative financing, entering into financial modules, direct lease, offbalance-sheet lease or synthetic lease," Fischer says. "It's a very sophisticated financial analysis." He adds that the primary goal of these companies is to allow them to put all of their properties on their system, enabling them to understand the square feet, critical dates, utilized portions of the portfolio and nonutilized portions of the portfolio. Also, the companies will have all the necessary information to manage the portfolio on an easy-to-use automated basis, says Fischer.

In addition, the financial analysis market is becoming more and more analytical in the way it evaluates its owner's portfolio, says Michael T. McKean, president of ICA Inc., a software development company in Palm Desert, Calif., specializing in real estate and accounting software. "What is being forced upon software development companies is the need to comply with the ever-changing analysis procedures," McKean says. "How we accomplish those things is a combination of studies that we have to go through with financial organizations to not only analyze but to understand the indepth types of analysis required, the computations necessary to provide feedback to the portfolio managers. and the actual owners that these managers represent. One of the things we try to ensure is that our software has a good solid core database of information to that the analysis packages that might be more appropriate for one portfolio can be used by others."

As more financial institutions demand more information, they are also seeking it in better forms, says Roberta Nelson-Walker, managing director/CEO at Oakbrook, III.-based Visimark. "One of the problems with software is that a great many executives need information and need it now, but they don't know how to access it," she says. "Our front-end software can hook into all ODB7C software systems and adds mapping and visual capacity to enable the president or the janitor of the company to access the information. It permits you to organize all the information about all the properties you deal with, and it can hook to all the other software systems, including what you used for financial analysis accounting. It also fully integrates with Mapinfo, which is GIS software."

Dealing with the information age

Even the Internet is being used by financial institutions and others in their quest to stay on top of the industry. REdirect, for instance, is a free Internet service, updated daily, that features a database of lenders and mortgage brokers. The brainchild of David Weissman, REdirect is designed to help the commercial real estate industry work smarter by using the latest computer technology.

According to Weissman, transactions close as a result of gathering accurate information. "The information is finite and is there for everybody to use," he says. "We help financial institutions find the accurate, current information they need quickly and easily. Our databases can be searched two ways. There is a multifaceted search tool so a user can find, for example, an all-cash buyer who is looking to buy market drug anchored shopping centers in Ohio in the $5 million range. There is also a keyword search, so users can look for every firm in the database with the word `American' in their name or everybody named `Jones' listed as contacts in the firm profiles."

"Understanding how financial analysis data can be used by different departments and at various levels of the banking organization is being considered more carefully," says Dyna's Foshee. "The importance of being able to access information produced by each successive level of the organization and slice and dice it any way desired is gaining prominence."

"The monitoring group would then continue to update the forecast file as necessary during the life of the loan," Foshee says. "Senior lenders and loan committee members may then search the data warehouse to analyze risk concentrations by borrower or real estate product type. Sharing data between functional departments in this manner yields the type of efficiency that increases an institution's return on assets."

Mike Sheridan is a Houston-based writer who contributes to a number of national magazines.