Technology Report

Firms specializing in providing online market information may soon have a new competitor in the Minnesota Commercial Property Exchange (MCPE), a local model that is grabbing national attention for its success.

The Exchange is a commercial property tracking system created by the Minnesota Commercial Association of Realtors (MNCAR). The Web-based system allows subscribers to search and update property listings in the seven-county Twin Cities metro area.

“The MCPE is a much faster alternative compared to the old paradigm of picking up the phone and calling to find out the status of a property,” said Phil Simonet, a principal at Bloomington, Minn.-based Paramount Real Estate Corp. and current president of the 11-person MCPE board of directors. “We're using the system a tremendous amount because the information on where the market is at is really at our fingertips.”

Although a number of commercial real estate boards across the country have established Web-based market data systems, the MNCAR model continues to gain acclaim as a national leader due to its profitability, high usage among the real estate community and accurate market data. The MCPE was awarded the Digital Media Award at both the 2000 and 2001 Realcomm Technology Conference held in Dallas. The association won both years for the Best Use of the Internet by a Commercial Board.

“They are successful because the system is very well designed,” said Stephen F. Blau, national president of the Society of Industrial and Office Realtors and vice president of business development at GMH Capital Partners in Newtown Square, Pa. “It seems to be a very thoughtfully designed platform, and that is always a good place to start.”

In recent years, there has been an explosion of firms specializing in gathering and selling property and market information. But one feature that distinguishes the MCPE from other third-party information providers such as LoopNet is that the Exchange encompasses a comprehensive property database as opposed to only listing available properties. Among the 15,300 properties currently listed at www.mncar.org, only about 2,500 are being actively marketed.

As a result, the Exchange is used as both a marketing and a research tool. So users can access information on available properties, as well as obtain data on neighboring properties to get a feel for a specific submarket. “It helps users develop vacancy reports and find out what the shifts in the market are,” said Jim Mayland, manager of the Exchange for MNCAR.

Getting started

About five years ago, MNCAR embarked on an effort to manage information in a more “technology forward” manner, said Whitney Peyton, a senior managing director in the Twin Cities office of Los Angeles-based CB Richard Ellis and past president of the MCPE board. The goal was to use the Internet to enhance efficiency through a database of shared information. The basic model that was launched in December 1996 allowed users to search an Internet database and print simple reports.

Twin Cities firms recognized the benefits of creating a member-controlled information exchange. “Our company has been a huge supporter of what our commercial board has done through the MCPE,” said Mike Ohmes, vice president of brokerage services at Bloomington, Minn.-based United Properties*ONCOR International and a vice president on the MCPE board.

Like many companies, United Properties was spending time and money maintaining its own internal property databases. The effort required United Properties not only to manage the firm's own listings, but also to update every other company's listings. “That's a big job,” Ohmes said. But back in the early to mid-1990s, that was the only option. Now United Properties leverages information on the MCPE to compile and analyze data to serve its clients.

The Exchange has become increasingly sophisticated with features such as a link to county tax records and zoning, as well as the capability to provide virtual property tours. Today, the MCPE offers five searchable areas, including industrial properties, office properties, retail properties, land and universal, which searches all of the databases at once. Standard criteria of the property descriptions include digital photos, floor plans, asking rents, space availability and building amenities.

Users have options to print reports in a variety of formats such as a full-detail report, a broker report or a client report. A new listings page highlights all properties that have been added to the system within the past 30 days. The MCPE also features a mapping feature that allows a broker to pinpoint the location of a single or multiple properties.

Profiting from success

The commercial property exchange model in Minnesota is gaining attention on a variety of fronts, most notably for its profitability and wide use within the Twin Cities real estate community. The Exchange has been operating at a profit almost from the time it went online in December 1996. Since 1999, the system has generated more than $300,000 in annual gross profits.

“Because MNCAR is a not-for-profit organization, we're trying not to generate huge revenue,” Mayland said. The association spun off the Exchange as a separate business unit, which also operates as a non-profit concern.

Some of those profits go toward building a cash reserve to update technology. In addition, the profitability helped the Exchange to lower its subscriber rates in 2001. Individuals accessing the Exchange on an unlimited basis currently pay $550 per year, while fees for limited-access users start at $275 per year. The MCPE also generates revenue through banner advertising on its Web site.

The profitability of the system can be attributed to membership support and the fact that most brokers and managers update their own listings. “Members are more in tune with their information as a result of updating themselves, and the small staff at MNCAR allows us to keep costs down,” Mayland said.

The underlying factor behind the MCPE's success has nothing to do with technology and everything to do with the culture of cooperation that exists in the Twin Cities, Ohmes said.

“If the brokers didn't buy in, it would sit on the shelf and never get used,” he said. “What we have been able to do in Minneapolis through a lot of great leadership, cooperation and trust is to create not just a broker's solution, but an industry solution.”

About 95% of MNCAR's 850 members subscribe to the Exchange. Owners such as Houston-based Hines and Duke Realty Corp., Indianapolis, have embraced the system as well by listing their properties on the Exchange. “The success is due to industry ownership and broad usage by members in the industry,” Peyton said.

The industry provides data voluntarily and uses it regularly, so it receives industry support within the market, Blau said.

“Everybody has determined that it's in the best interest of property owners, consumers and service providers to participate in this venture,” he said.

Another key to the Exchange's success is its efficiency. “I would say that we have probably saved 15% to 25% of the time of the average professional in the marketplace,” Peyton said.

The quality of the data is due to strong peer pressure and the self-policing that occurs. If a broker is slow in updating information or data is inaccurate, he or she will undoubtedly hear about it from peers who are sending that data to clients.

In addition, the Exchange has an arrangement with the Minnesota Real Estate Journal to publish market data in a quarterly leasing guide that is available to the general public. “So that is another incentive to update the information,” Mayland said.

Unique features

The main advantage of the Exchange is that it uses the Internet as a means of delivering fast and accurate property data. Subscribing members have the ability to update their own listings and search the Exchange databases. Users have real-time access to new property listings, business opportunities, investment properties, MNCAR news, standard contracts and links to industry resources.

“With our system, everything is live and updated continuously, so anytime someone wants to make a change they can do so,” Mayland said. Users can generate reports instantly, and then e-mail or fax them to clients for a quick turnaround. Because the Exchange is Internet-based, the system also offers a broadcast feature. Users can send out a universal message if they are looking for a specific type of property or building requirement such as clean room space.

Not only do firms have access to quality data, but they also have some degree of control in how that data is structured. Rather than relying on the goals or strategy of a third-party service provider, the real estate community has input on solutions to enhance the Exchange and add new features, Ohmes noted.

For example, the MCPE added Web filing cabinets where users can load additional information, such as photos, space plans, fact sheets, brochures and standard lease documents, to property listings. A broker can examine and print out a copy of the listing rather than contact a listing agent to either fax, e-mail or mail the information to the broker.

“It really has expedited the transfer of information back and forth between brokers, and provided a great initial source of information to qualify space opportunities,” Ohmes said.

Going national

The MCPE business model may soon emerge in other markets around the country. MNCAR is helping to introduce other commercial real estate boards to its system. To date, MNCAR has formed an informal alliance with the Atlanta Commercial Board of Realtors and a group of top real estate firms in the San Diego area. “The goal of the alliance is to help get the industry to a common place,” Mayland said.

The Atlanta Commercial Board, which represents about 1,700 members, has been searching for a member-owned solution to market data. “The market for real estate information in Atlanta had become substantially fragmented over the past few years,” said Bob Mathews, president of the Atlanta Commercial Board and executive vice president of Atlanta-based Colliers Cauble. “There were specific concerns regarding cost, quality and timeliness of data.”

The MCPE sparked Atlanta's interest due to its profitability and the fact that it functioned as a non-profit cooperative. The Atlanta board hired a consultant to study different systems used across the country and settled on a hybrid based on the MCPE and a similar service in San Diego.

Known as Commercial Information Exchange Inc., the Atlanta model will be a marketing and research tool that will allow brokers to list and search available properties, as well as track market data such as vacancies and rental rates. The first phase, or listings module, of the Atlanta Exchange is expected to be up and running by the end of the year.

The next level

The Minnesota Commercial Association of Realtors recently took another significant step in expanding its business model in the national arena when it signed an agreement with Kansas City, Mo.-based Xceligent Inc. in June. Xceligent builds market information exchanges and provides research data for communities of commercial real estate professionals.

Xceligent will leverage its technology platform to partner with local real estate organizations around the country to build information exchanges similar to the Minnesota model. It plans to take the Exchange to the next level of technology, as well as introduce some economies of scale by spreading the cost to thousands of users compared with 800 or 900 users, Peyton said.

The main appeal of the Twin Cities model to Xceligent is that the local real estate community owns the system. “Minneapolis is obviously one of the pioneers to do that successfully,” said Douglas Curry, CEO of Xceligent. The American Industrial Real Estate Association in Los Angeles is another commercial real estate group that has developed a highly successful model based on industry participation.

Xceligent is taking the fundamental components of the Minnesota Exchange and applying it to other markets. “Each local system has its own flavor as to how the business model works, but it all functions on a similar business platform,” Curry said.

Xceligent already has signed deals with San Diego, Kansas City, Mo., and Atlanta, and the company is currently negotiating with six other markets. “We don't want to come in as a third-party provider. We always want to provide a partnership with the local community,” Curry said.

The vision of developing an industry standard spurred the Xceligent partnership, Mayland noted. Ideally, MNCAR would like to help the industry become more efficient. “It works well for us here in Minneapolis, but it doesn't do the industry any good if we're an island unto ourselves,” he said.

Ultimately, the goal is to enlist local communities to create an industry-wide consortium that operates on a common system. “You are going to see a brush-fire movement where local communities across the country recognize that they have to get involved with how the process happens,” Curry said. “The Minneapolis model is just the proof that it can be done.”

The national expansion of the Exchange concept will intensify competition among an already crowded field of market data providers such as Bethesda, Md.-based CoStar Group. At this point, the CoStar Group has not gone head-to-head with the Exchange because it does not currently offer any products in Minnesota. However, as the Exchange model surfaces in other markets around the country, CoStar plans to fend off the challenge by emphasizing the broad range of its products and services, according to CoStar spokesperson Rich Ellis.

In addition to its listing services, CoStar offers clients a variety of products and services via CoStar Property, a leasing marketplace; CoStar Exchange, a selling marketplace; and CoStar COMPS, a comparable sales information resource.

CoStar also offers a variety of other support services such as CoStar Connect, a system that conducts data hosting for clients' Web sites, and CoStar ARES, a contact management tool.

An integral component in the ongoing success of the Exchange in the Twin Cities and in other markets across the country is that the system constantly adapts to the needs of its members. Both the realtors association and the Exchange strive to update system features to make it easier to use and more accessible to members. The association's board is exploring options to add aerial photography, as well as access via wireless or hand-held personal data assistants (PDAs).

“The present system will only continue to enhance itself,” predicts Ohmes. “Member companies will be able to leverage it and move forward because the system is always evolving based on our member needs.”