The signs are everywhere. Investment in real estate technology increased 607 percent in Q1 2019 compared to the previous year. Real estate technology-focused events like ICSC, Realcomm and CREtech continue to break attendance records. In survey after survey, a majority of real estate executives have expressed a desire to embrace innovation.
Everything points to the commercial real estate industry shedding its tech-averse image. And yet, real estate companies continue to struggle to deploy technology at scale. This is particularly true with “smart building” solutions, which require a range of expertise to implement successfully, including sensor deployment and networking skills, database management, user experience design, and scalable system integration. That may be why an estimated 25 percent of attempts to utilize internet of things data are abandoned before deployment ever occurs.
In addition to the technical challenges of capturing data about physical systems and operational processes, there’s a more fundamental problem that must also be addressed: Real estate companies must become experts in differentiating, testing and rolling out technology across diversified portfolios. Today, this is an internal capability that very few firms possess.
Doing nothing is not an option. Soon, less-experienced individuals are going to be running laps around industry vets. Experience will no longer be a differentiator, and any firms running on outdated workflows will be at a clear disadvantage.
This presents a challenge because the clock is ticking to start leveraging technology effectively and there’s a crowded marketplace as well as a very real risk associated with investing money and time in the wrong technology and then having to fight an uphill battle to switch to a different provider later.
In places like New York City, the majority of buildings are over 50 years old, and an estimated two-thirds will still exist in 2050. They’re run like it too; if you took an experienced building operator from the 1970s, he would be relatively comfortable with the equipment and processes in most properties.
The question is, how can real estate companies quickly identify the smart building technologies that will deliver quantifiable benefits, even if the buildings don’t change?
“While many executives would like implement a technology strategy, most oftentimes don’t know where to begin,” said Brad Greiwe, co-founder and managing partner of Fifth Wall, a Venice, Calif.-based venture capital firm whose investors are some of the largest owners and operators of real estate in the world. “The key is to identify quick, low-risk projects as a concrete starting point, and then leverage that data to convince the board that there is value to be unlocked.”
The first wave of technology to get adopted at the portfolio scale has been made up of solutions that digitize existing processes. A salient example is the newly minted proptech unicorn, VTS, which recognized the opportunity to bring the $11 trillion of assets managed in spreadsheets onto the cloud. Landlords should be actively looking to digitize their existing operational workflows such as maintenance and repairs, energy management, tenant billing and capex forecasting.
The beauty of this strategy is that in the process of digitizing processes and eliminating wasted operating expenses to generate a higher net operating income, the firm is steadily gaining buy-in from end users because it enhances their jobs instead of disrupting them. More importantly, the digitization produces an immense amount of data about the portfolio as a byproduct. This data is the foundation upon which the real estate companies of the future will be built.
From the top, owners and asset managers will be able to dynamically sort their portfolios to target where the highest levels of waste are occurring. Regional engineering managers will be able to virtually triage any problems that occur at properties miles away by remotely “logging in” their assets through an online replica of the systems. Onsite staff and third-party vendors will be fed a dynamic task list each day based on the highest value activities they should perform, with automated verification of completion.
The innovations that will seem “transformational” tomorrow will be built off the decisions that are made today. Identify any processes that are still done manually and are prone to error, focus on solving business pain points instead of getting the shiny new toys, and get comfortable with testing multiple solutions simultaneously with the knowledge that some tests will fail. Most importantly, embrace that change will be constant from now on, and orient the organization towards that fact.