Disruption has been limited in CRE. What areas of the CRE industry are ripe for innovation? Why haven’t they been tapped yet? Thinking about all businesses within CRE (brokerage, property mgmt, facilities management, valuation, investment, development, construction, etc.)
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Depends on what you think of tech. Is it "disruptive", or is it a tool? The latter certainly exists in real estate and more and more tools are being added every day. But everytime a company has tried to "disrupt" real estate, they have failed epically. Commercial real estate is a highly complex, hyperlocal product where even the biggest investors in the world are a tiny fraction of the overall market. Real estate is highly regulated, especially new development. So anytime a tech bro pitches me on how his company is going to disrupt CRE, I usually smile and wish him luck. Over a longer period of time, I would expect to see a lot more robotics and automation involved in building construction. Again, I'm not sure if that is disruption or merely a tool, at least from my vantage point as a developer.
In general most "disruption" has failed epically.
If you want to say disruption is just a fancy term for "credit is cheap and we have a lot of money to throw around before suckering someone in to take us out of our overvalued positions" then you can argue disruption has been very successful. Otherwise... who are these wildly successful disruptors? Individuals made out like bandits - companies have floundered.
From the valuation side of things, there have been millions of dollars thrown at trying to automate the appraisal process (think Bowery, Apprise, Zillow, Cushman and CB to name a few). As @CRESF said, real estate can be shockingly hyperlocal and it is extremely difficult to reflect some market parameters in code. I would say that tech has improved some efficiencies in the process, but we are waiting to see a true disruptive product that changes the analysis of CRE as we know it. In the meantime, some of the companies that have relied too heavily on tech (Zillow and Bowery Valuation) have not seen the industry disruption that they expected.
Automation is also only as good as the dataset being used, right? Broad market data, survey results, and recent transactions are lagging indicators and you still need a human to contextualize these, especially during a volatile or uncertain market. Also, there's a lot of proprietary data and it's not clear to me how you'd fully automate an appraisal yet. A good appraiser doesn't just look at data, but also speaks to brokers and other market participants so that they always have a pulse on the market.
The biggest opportunity, which is already beginning to get filled, is in prop tech and optimizing building and back end operations through technology.
From an investment perspective, an improvement to ARGUS would be great but good luck there. Market research is the other huge area, but until an MLS service becomes the standard for transactions and brokers go the way of the dinosaurs I don't see much happening from that perspective beyond CoStar's extremely mediocre offering. Being a mostly private sector, its hard to get accurate, aggregated market data.
AI will be the other next big evolution as its used to start analyzing market/demographic trends, capital flows, etc. to generate insights.
Property Management costs could come down a bit with increased automation, but there will still be a need for real bodies to do the work for the foreseeable future. For investment, look at how well Zillow's venture into buying houses through automation did. If it didn't work for single family homes, I have a hard time imagining it would work any better for commercial/multifamily properties.
I want to build off the others that mentioned how local real estate is. In markets that development is difficult to execute in, whether it is land locked or cities aren't receptive to it, have a higher premium on acquisitions since supply is going to be very limited. Well if the problem is receptiveness to developers then that could change in any given election cycle so how do quantify that for tech to help automate pricing premiums? Any project is going to have high cost variations based on location and type of deal (if you need utilities/water to a new project that cost could be massive depending on the scope of work needed to hookup the site) that AI or any other tech-based innovation would have a very difficult time projecting. Real estate is also very event and people driven that tech can't really account for reliably yet. There might be some possibility for brokerages to cutdown on staff with things like ChatGPT being able to make marketing packages in the future but I wouldn't call that revolutionary necessarily. There would still need to be brokers to create markets for deals and as mentioned above, there need to be analysts to run numbers for a variety of reasons.
Someone mentioned it above, but perhaps consolidating market data more efficiently and having a more widely established data source (similar to Bloomberg terminal being THE source for public markets). But, since information is a big competitive advantage in investments I don't see owners willingly advertising their info for consolidation. There might also be a legit case for collusion if there was a source for that (see the lawsuit in Seattle when rents were being pushed by multiple landlords using the same rental calculator).
CRE tech is bs! You have insider information, emotions, micro market factors, risk profile and appetite of investors to transact in any market environment that impacts deal flow!Reason you can’t get rid of brokers!Different factors motivate sellers, and shift in market dynamics also impacts market movement!The most successful groups over the last decade got lucky as cap rate compression saved everyone!!!If you can tell me where cap rates will go in the next 5 years, or what asset class will be the winner! Then you have won the battle!CRE tech will only help with data collection!I mean, for shits sake!? We all pay 20-50k for costar, and the data is 60 percent accurate. Look at costar cap rate to what is actually going on in your market?! Also, CRE lags 3 to 6 months to market! After LOIs are signed, it takes another 3 to 6 months or longer for it to make it to costar! Only insiders know the story! Until brokers have to report accurate cap rates, and information on deals, or you are an insider… the data is useless! Becomes an emotional acquisition!
I don't personally work in RE so this is just my $.02 but would be interested to hear others' feedback on this. I'd expect RE to follow the same trend that stock brokerage has followed in the past 3 - 4 decades before the age of online brokers and no-fee stock purchases. Before online brokers, you'd have to go through a local stock broker at your Edward Jones / Fidelity / insert generic wealth manager who you'd call and ask to purchase 20 shares of Walmart / GE / insert generic 80's blue chip stock. Nowadays, there's no real need for a stock broker and liquidity is exponentially higher which in turn tightens the bid-ask spread and leads to more competitive fees. Stockbrokerage is commoditized now and taking long positions in stocks through large online brokers has no fee. However, there will always be large mutual funds that need humans to steer the ship and capture nuances in the market which a program could never understand such as bad press, cultural trends, etc. The asset managers use tech for sure but will never be replaced by tech. Asset management and stockbrokerage has now become a tech enabled industry but not a tech driven industry.
I'd expect tech to have the same impact in RE wherein bid-ask spreads on real estate will tighten, liquidity increases, and real estate brokers probably being the ones most disrupted by tech. RE asset managers will always need humans to steer the ship as others have commented that tech won't be able to see hyper-localized trends as people do, to understand cultural trends. Tech can only understand rational behavior such as numbers. Unfortunately for tech though that humans are extremely irrational which a rational AI will never be able to understand.
So tl;dr, I'd expect tech to improve market making for RE as it did for stockbrokerages, bid ask spreads tighten (albeit never to the level as stocks as no two pieces of RE are perfectly identical), RE overall becoming more competitive. Just think of the impact of sites like Zillow has had on market making for SFH RE and how much easier it is to find and buy a home. But there are certain functions that can never be fully automated, just tech enabled.
You have sites like rcm1, costar, etc to get listings but the insider information and pocket listings impact deal flow on the commercial side.
If you take cap rate at face value, you are toast! Without sellers providing their T12 to know why a deal went for a 3 cap which is driven by rents being below market, buyer profile, leverage, etc the data is useless! Also, is it a tenant or landlord friendly market.
Groups new to market also have to overpay or international buyers! How do you quantify this information through AI or data? You need deal insiders and that’s why big pension funds hire brokers to transact on their behalf!
cretech is great for collecting historical data! Until private landlords are required to post clean t12 and RRs on a server, quarterly… lots of noise in the data and information.
Why do you think Goldman, Greystar, etc all go to NMHC each year? Or the big brokerages at jll, w&d, eastdil, cb, all go?! It’s a relationship business and brokers control the market! Eastdil has capita relationships but there is a broker in California at newmark who can tell owners that if they don’t go with his shop, they won’t see a deal ever again.
We work in a very qualitative business!! If you know how to manage people, you will make more money over any excel chops. The best deal makers know this!
Ostensibly one day chat GBT will be able to read and interpret all the zoning laws and city plan updates to find the best sites to develop. Let's hope not
This sounds interesting! Do you care to elaborate?
I think this will happen shockingly fast
This doesn't make any sense. There are already companies making software which do exactly what you describe.
The issue with entitling land isn't understand the zoning, which is super easy, cheap, and quick, but convincing human beings with a variety of different motivations that they should help you upzone a development site. Your attitude gives me the impression you don't actually do development, but just know that "zoning" is part of the arduous process of getting started on a project. Because any halfway competent developer knows what the zoning laws are which would permit them to build X, Y, or Z. It is changing the zoning code, which might be four decades out of date, in order to reflect a modern best and highest use, which is where the value creation comes in. And ChatGPT isn't and never will be helpful at that (or not in the foreseeable future, at least), because being successful requires understand the psychology of the myriad players whose consent you need to get that rezoning done.
The number of people on these forums who act like they're Gerald Hines, despite obviously having never entitled a piece of land in their life, continually astonishes me
The most interesting idea that I heard several years ago was the creation of an accessible/shareable and secure method of recording property ownership data and documentation via blockchain tech. I don’t remember all of the details but it was meant to disrupt the title companies.
This is the most logical "idea" but in reality isn't all that valueable. Ownership change speed is the primary reason why. Could it make it easier to "research" ownership? Sure, but in reality those problems are solved. It would be a viable idea if it can disrupt the insurance market surrounding title. The issue here is that would cut the value of this disruption by almost 100%.
Wait, why? Title costs are non-zero, despite the fact that very few title issues ever come up that need to be insured. The entire premise of the title industry is that they won't insure land which has even a remote possibility of having compromised title... but in that case why the hell does anyone pay them? If blockchain technology can give you a foolproof method of guaranteeing title, it should at the very least bring down title costs. And while 10 bps or whatever may not sound like much, that would be far more valuable than basically any other "disrupting" technology we've seen in the last couple decades. There were ~$875b in real estate transactions in 2021; a technology which can save $5-10b a year in transaction costs is already worth more than just about every tech unicorn in existence.
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