Using Data to Make Informed Decisions in the Real Estate Industry
Companies collect significant amounts of data and constantly tout the value of this asset; either for their own use or to package and resell. Almost every time I receive a sales call from a software company, the rep spends as much time talking about the value of the data that their product collects as they do about the actual product that they are selling. There are many examples of where the value of data is obvious (valuations, underwriting, forecasting), but there are equally (if not more) examples where data used in creative and unconventional ways can make an enormous impact on a company's top line growth as well as profitability. The biggest hurdle companies face is knowing how to distill, analyze, and monetize their data.
Occupancy
I was exposed to the value of creative uses for data when I joined Kastle Systems. Kastle is the leader in managed security for Class A/B multi-tenant commercial buildings and offers services that include access control, visitor management, and CCTV. Initially I thought that I was joining a security company where the value proposition was clearly defined as electronic security for buildings and tenants. Although security is a huge part of their value (and they do an amazing job), I was surprised at how much value could be derived from the data that an access control system collects.
When an employee swipes into a building, they typically have access to a single suite on a floor. Even if the building doesn’t have turnstiles or elevator access, you can deduce once that person swipes their card, that they are in their lobby for X period of time and then in their suite for the rest of day (card readers on each door, sensors, and/or geofencing technology removes any guess work). With this data you get a clear picture of occupancy, and understanding occupancy is key for both landlords and tenants to unlock savings. Landlords can optimize their HVAC systems based solely on occupancy levels. According to 75f.IO, commercial landlords spend on average 7.5% of the total cost of running a building on HVAC. A few percentage points can add millions of dollars of savings across a portfolio. Property managers can stagger their facilities’ teams based on the peak times for arrivals. They can even use occupancy rates by time of day to monetize unused conference space. Tenants on the other hand can rightsize their portfolio based on actual usage instead of perceived usage. Access control and space utilization are basic examples, but they demonstrate the power that data can have, even if the core purpose of the solution was something completely unrelated.
Costar
One company that has mastered the art of packaging data is Costar. Their primary business is a broker facing portal for capturing closed deals and providing market comps and a suite of tools and services for commercial real estate professionals. However, they have figured out how to monetize their data in very interesting ways. Companies that are moving are in a buying-cycle for many products and services related to their move including furniture, office equipment, and IT infrastructure. Most companies choose the first vendor that they speak with, so speed of reaching out is paramount. Companies do not advertise that they are moving when they initially sign a lease, but Costar has access to that data. Understanding the value of the asset that they have, Costar sells subscription access to vendors whose success depends on being first to reach out. When I was selling SaaS solutions to companies that aided their move, we utilized Costar to reach out within days of the lease being recorded in their system.
Tenant Experience
With the challenges currently facing the commercial office market, and with so much available inventory to choose from, tenant experience has never been more important. Happy tenants are way more likely to re-up their lease then tenants who have had a miserable experience. There are a range of tenant amenity apps for CRE including HqO, RiseBuildings, Lane, and Equium. While their primary goal is to delight tenants and give them access to everything that they need on a signal screen (access, food delivery, service orders…), the data that they can collect is what drives value for landlords. For example, an App can measure specific amenities’ usage so that property owners know in real time what isn’t working well and where to double down. They can track real-time NPS at the employee level to quickly detect problems. This data can be used by the landlord during renewal time to build a strategy on rate. If you have a tenant that had an amazing experience in the building, a landlord knows that they can hold firm on escalations.
Data Management Solutions
According to Andrew Flint - CoFounder of Occupier,
“If you do not understand what you have and how you are using it, how can you make smart real estate decisions in the future? To do this effectively, all stakeholders need to be able to access key portfolio data as they evaluate short and long-term operational needs of the business. This means the ability to be proactive as your business evolves, or react quickly when dramatic shifts in markets happen like they have with Covid or did in the great recession in 2008/2009, is imperative. In doing so and depending on the situation, leveraging data can help you reduce unnecessary costs or promote growth for your business.” Many data points are required to provide clear direction in the future real estate decisions occupiers need to make. Occupier's Solution helps companies stay in compliance with new lease accounting standards, drive better portfolio decisions, and track deal pipeline — ensuring success in a rapidly changing marketplace.
One of the biggest challenges with using data is that a single source rarely tells the entire story. Oftentimes you need to layer multiple data sources on top of each other in order to make it actionable. This data comes from disparate systems like lease management platforms, sensors, accounting software, HVAC, access control, and dozens of other places. Companies like Cherre have built platforms that aggregate data from disparate systems into a single source of truth. Having this data in one system, with the ability to aggregate and combine it into a single report, provides decision makers with valuable insight that would have been impossible to decipher from a single data stream.
Flexible Real Estate
Flexible/On-Demand real estate is typically looked at as an arbitrage business. An operator builds their pricing on base lease cost + OPEX + margin. However, using only those 3 factors leaves a significant amount of money on the table. Just like an airline prices tickets, on-demand bookings require dynamic pricing in order to maximize revenue per square foot. Dynamic pricing requires a steady stream of data which takes into account day-of-week, available comparable inventory (which also fluctuates on an hour-by-hour basis), local events such as business conferences, seasonality, and more. As a company grows, they can use historical data for dynamic pricing, but during the ramp period they need to purchase this data from different sources. Many companies are sitting on this data, yet do not realize how valuable it is to other companies and it often goes unmonetized. It requires a data strategy to fully understand how best to either use you data or package and sell it to others.
While I was at Breather, Henry Mizel who ran revenue operations and strategy used data to uncover and launch a new product. Henry identified that only 0.5% of annual revenue was booked less than 48 hours from the start time and therefore any vacancy within that period was a wasting asset. Additionally the average length of these bookings was 2 hours, meaning a lower margin given fixed cleaning costs. He packaged this up into a monthly membership product called ‘Passport’. Passport sold a fixed number of day passes (5, 10 or 20 / month) at a fixed price. What was particularly clever was that it decoupled revenue from the square feet in their portfolio and significantly increased overall portfolio revenue per square foot.
Brokers
There are many interesting and creative ways that a broker can use data to anticipate when a client is outgrowing their space. Tracking expiration dates is the common form of prospecting, but hundreds of other brokers are doing the same thing. In order to have an edge, you need to look beyond lease expiration dates because a company’s space needs rarely align perfectly with their lease term. One example of creative data use is utilizing job boards to look at companies who are on a hiring surge. If a company has been in the same office for some time, and it is clear that they are scaling their headcount, you can make an assumption that their current real estate needs may be changing. If you then overlay any recent funding rounds and data such as their use of nearby flex space or on-demand conference rooms, you have a good reason to proactively target this company. Data companies like Apollo aggregate data sources and provide filters that sort by open job reqs, funding rounds, and many other metrics that can provide insight into a company's space needs.
Retail
Some of the most interesting uses of data come in the retail segment. One of the divisions that oversaw sold CCTV into the retail sector. As we were evaluating new technology we came across the company i3 International. Although our goal was surveillance, the company demonstrated how data that their cameras collected could dramatically improve the sales and profitability of retail customers. Their solution was able to analyze how much time shoppers spent in each area of the store and create heatmaps:
The heat maps provided real time data back to the retail tenant so that they could see which areas of the store customers spent the most time and which areas they avoided. Their clients could use this data for purposes like moving high margin inventory to highly trafficked areas or proactively adjusting pricing on inventory that had garnered high visitor interest but lack of sales. Brick and mortar retail has notoriously low margins so it is vital that owners take advantage of every edge that they can get. This in turn benefits the landlord in the case of percentage rent leases.
With the explosion of IoT in real estate, the way that data is captured is increasing everyday. Whether it's through sensors, cell phones, biometric readers, access control, cameras, or back office management systems, it is hard to comprehend how much data is being collected in the real estate industry. There are plenty of privacy concerns that tenants and visitors have when it comes to data, but the value that it can bring to both landlords and tenants is enormous. I believe that we are in the early innings of actioning data, but the art is in figuring out what to do with it. Whether you are trying to monetize your data or figure out how to use it to create value, it is the companies that are most creative that will figure out how to use it most effectively.
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