Commercial Real Estate’s Urgent Need for Data and Reporting Standards
Earlier this year, GlobeSt.reported a nervousness from institutional investors in commercial real estate. The logic, as explained by Preqin's Andrew Moylan, was that while the demand for CRE remains high, institutional investors are perplexed, because they don’t know “where we are in the cycle” and whether or not now is a great time to be investing large sums.
They are having such a hard time answering this question because they don’t have the right tools to properly analyze the growing number of data points that make up their portfolios.
That’s right, more data points and more square footage. Over the last decade, I’ve watched institutional investment grow CRE to the point where it is now a designated asset class of its own. This growth has also made portfolios incredibly complex – and much harder to analyze.
Let me spell out just how significant this growth is: NAIOP reports that about 10 percent of institutional portfolios are dedicated to real estate. This has grown from less than five percent in 2000. While the percentage change may seem small, Boston Consulting Group added the perspective that “globally, institutional investors control roughly $70 trillion of assets under management, with an increasing percentage allocated to real estate.”
And we don’t have industry standards around data and reporting?!
The need for better data standards in the industry is already here and is being increasingly highlighted as events of a global scale unfold. Take last summer’s BREXIT vote. It took months for institutional investors to determine the asset exposure, or risk, that their portfolios contained. The reason for this incomplete picture? Contracts, spreadsheets and tenant information sit in disparate systems and files. Assembling this information is just as monumental of a task as analyzing it.
On top of this, public REITs, which have public reporting requirements, are gaining investment popularity, because they historically perform better than indexes like the S&P 500. Put plainly: we’re operating in an industry that’s doing better than other asset classes, holds a substantial portion of the world’s wealth, and has seen relatively little data standardization and regulation.
Reporting tools have become a competitive advantage
Some investors have connected the same dots that I have and are spreading strong reporting tools to their downstream partners and operators to use as a competitive advantage in today’s market. There are even investors using technology that taps them into real-time market data. To Moylan’s point above, these are the investors who aren’t as nervous about attempting to time market cycles with old techniques, because they have actual data and business intelligence (BI) that tells them if, when, and how much of their portfolio they should be investing.
While some of these reporting tools have been created in-house by investors and their partners, it’s realistic to expect that third-party technology partners will emerge as the data stewards in the industry, because they can develop, integrate, and deploy software at a much faster clip than institutions themselves.
Best practices for choosing data and reporting technology
Navigating reporting technology can be overwhelming and confusing. Here’s what institutional investors should consider as they purchase tech:
- Customized to CRE – Every industry has its own way of working and unique needs. Investing in technology is a big commitment. At the same time, BI and data technologies are on the agenda of just about every C-level executive. This means that there are probably more options (and salespeople) out there than solutions that are a fit for CRE. Remember that you’re investing in technology to better align business strategy with the way you work. Make sure that any solution you choose supports the integrations you need, fits and improves your workflow, and has favorable case studies in CRE (or better yet, only serves CRE).
- Platform-based – Gone are the days when one piece of technology was the only solution necessary. We’re lucky to work in a time when software is making our daily lives more productive. This also means that every business comes with some “digital baggage.” As a result, platform-based technologies have emerged to do more than just provide critical core functionality, but to bring in all of the other technologies you might work with already, and on a single screen. This means that any data and reporting technology you choose should speak to and work with your accounting software, for example. The idea is to give you one system of record to monitor and manage all assets. Another advantage is that customers of open platforms can often advocate for the integrations they need with their technology provider.
- Governance – Data would not be very helpful forward-looking if it didn’t consider points from across portfolios. To achieve any sort of forecasting a level of standardization is necessary to provide a single version of the truth and ensure that all reports and visualizations represent reality, rather than the metrics that benefit managing partners and their job security. Make sure that your technology provider helps you secure data, ensure accuracy, and easily spread data throughout your organization with its governance capabilities.
Across commercial real estate, institutional investors and their partners who do not proactively find solutions to data and reporting needs have every reason to keep a roll of Tums in their pocket and face constant nervousness. On the other hand, those who embrace tools that create early change for their organizations will immediately find a competitive advantage in both profitability and the confidence to judge market timing and outcomes.