Let’s dive deeper into four common pain points impacting commercial real estate in 2020 – and how to address them.
Anyone with a LinkedIn account who even marginally keeps up with the news knows that data is the currency of the future.
There are endless articles out there about big data, predictive analytics, digital solutions, artificial intelligence, and how all of that will transform the future in ways that stretch beyond our imagination.
That’s terrific, but “the future” is the future. What about those of us in the present who are trying to integrate monthly operating partner data into our standard reporting? What has our data done for us lately?
The truth is, commercial real estate firms share common business challenges – many of which are data-related. The good news is that data strategy is not all future-focused – it can be put to work solving the problems you’re facing in the present.
AUM and Headcount Are Linked
When is new business both a blessing and a curse? When there’s a direct correlation between assets under management and headcount.
“Manual processes and siloed data can lead to a link between headcount and AUM,” said Derek Thornhill, Vice President of Saxony Partners’ Real Estate practice. “If you’re wasting an employee’s time with a task that could be automated, that’s a problem that’s only going to get worse as you add more clients.”
“Similarly, if you don’t have an enterprise data warehouse where all of your data is stored, you’re wasting time having to hunt around for data that needs to be included in monthly and quarterly reports.”
In this case, spreadsheets are certainly not helpful. Too many commercial real estate firms are relying on spreadsheet software (like Microsoft Excel) to stand-in as their database of record. But Excel spreadsheets can be checked out, copied, and siloed across individual workstations. It’s a poor substitute for an enterprise data warehouse.
“Excel is a great modeling tool, and it definitely has its place,” said Kevin Tran, senior manager for Saxony Real Estate. “But once you start using it as a database or reporting tool, Excel becomes an issue. It doesn’t have the checks and balances that you need – and it’s just too easy for somebody to mess it up. When your database is not automated, vetted, and thoroughly tested, then you are going to have issues.”
The path to unlinking AUM and headcount begins with a thorough business process review to determine what repeatable tasks can be automated (or eliminated) to free up employee bandwidth. Then, you will want to work with technology experts to devise a right-sized, comprehensive data strategy to help you manage your data and leverage it into a competitive advantage. And finally, as part of that strategy, you’ll want to funnel all of your data into a secure, integrated data warehouse.
Difficulty Consuming Data From Operating Partners
Operating Partner data can present a number of challenges for commercial real estate firms. The monthly OP data packet usually arrives via email, often not in a format that allows for easy integration into your primary database.
“Asset management in commercial real estate really boils down to how fast you can turn around the financial data included in the monthly OP packet,” Thornhill said. “Lack of standardization can really throw a wrench into that process when you’re trying to aggregate data across your portfolio.”
The longer it takes to consume the critical data contained within that packet, the longer it’s going to take to deliver the reporting that investors need and demand. For many firms, especially those who are relying on Excel to serve as their database of record, data is flowing in from third-party sources, but it’s not flowing out. Employee hours then have to be invested to push that process forward. Corners can get cut in pursuit of a quick solution, which can ding the integrity of your reporting.
The solution goes back to the previous section – you need a comprehensive data strategy that implements standardization across the board, and you need third-party data (including the OP packet) to integrate into your enterprise data warehouse.
Data-driven Decisions Are Difficult
Without a comprehensive strategy in place, and without an integrated database, it’s impossible to truly trust what your data is telling you. Sure, you can run reports – but who’s to say that those reports reflect the truth if the data feeding into them is suspect?
“It’s hard to leverage data consistently and generate reports from disparate data sets in various Excel files,” Thornhill said. “We’re talking about data that will be used to assemble a complete picture of an asset prior to acquisition. If you don’t have confidence in that, how can you decide if the investment is worth the risk?”
Reporting Is Risky
Speaking of risk, reporting based on bad, siloed, or incomplete data isn’t just an inconvenience for staff – it’s a business risk. Inaccurate reporting can increase reputational risk, operational risk, or both.
Reputational risk increases when you report bad data to, say, shareholders, or the government. Operational risk increases as more and more staff are looped into proprietary, siloed processes. If a critical data trove is siloed within the underwriting team and a key member of that team quits, the knowledge walks out the door with them.
The solution to these often-complicated issues? It really all comes back to investing in a comprehensive data strategy and a reliable, integrated enterprise data warehouse. Such an investment will improve your confidence in your data and reporting and make your business operate more efficiently. In short – a good data strategy translates directly into business value.
“There’s a huge upside to being able to capture data from a seller and efficiently analyze it, especially in markets where assets are trading quickly with compressed closing cycles,” Thornhill said. “That is critical for determining if an acquisition is plausible or not.”