Technology is advancing at record speed, and as it does, it is opening the door to huge opportunities to harness commercial real estate data in new ways. Perhaps nowhere is this more exciting than in technology’s potential to tie together data points that support property risk management. What excites me is the extraordinary potential of leveraging data in the property space in new ways that fuel smarter decision making by real estate risk managers. Our industry is filled with opportunities for technology to be truly impactful. This isn’t threatening, but will instead allow professionals to spend their time applying expertise rather than performing mundane research and struggling to connect the dots across disconnected silos. One thing that motivates my work in this space is that with all the data, analytics and technology availability, property owners, lenders and other risk-takers are only scratching the surface in terms of harnessing data to fuel more efficient, smarter decision making. Thanks to technology, the needle is moving, and the implications for efficiency and smarter risk management are many.
Evolving Access To Data
There are tremendous inefficiencies associated with the industry’s use of huge volumes of third-party data without a means for accessing it all. Lenders collect a growing universe of data points on a property during the underwriting process that precedes a loan origination, and then more post-origination. In the end, the investors and lenders own the data. Yet the data is stored in different formats, and not in a cohesive way that allows this intelligence to be accessed, harnessed and used to support broader decision making.
Imagine if all of that data could be married into one consistent format that would allow for more holistic views of a property — and even an entire real estate portfolio. The excitement is that we as an industry are on the cusp of bringing life to property data that just hasn’t been readily accessible in the past.
Think about commercial property appraisals, for instance. This sector of the market is an extremely fragmented one. Niche providers specialize in certain property types. Others are experts in specific geographic regions. On top of that, there are myriad third-party validations from sources that provide tax liens and flood certificates. Approximately one million appraisals are conducted on commercial properties annually, but the output isn’t in a form that makes the data readily available to be harnessed beyond the individual transaction. The sophistication of a commercial real estate appraisal is so impressive, and yet the data is typically only used once.
The Exciting 'What Ifs' Of Tomorrow
Lenders today are facing business challenges to effective operational risk management — challenges that demand new solutions. Federal regulations require sound risk management and ever-changing regulatory burdens. Competitive market pressures are forcing banks to reduce costs and improve efficiency. Data acquisition and management is the most resource-dependent aspect of lending.
Data is at the core of our industry’s digital transformation, and technology has already reshaped how data is collected. The “give to get” approach gave rise to early innovators like Zillow. Crowdfunding is another offshoot of this trend. The net will only widen to include more and more data.
The next stage of evolution will involve tying those thousands of data points together to allow for new levels of risk management. The technologies already making big waves this year — artificial intelligence and the internet of things — are all innovative methods of collecting, analyzing and storing information. There are literally oceans of data on commercial properties inviting us to make sense of it all.
The first hurdle is to focus on structuring data in a common standardized format, including data like appraisals that are currently locked in thousands of PDFs. Artificial intelligence is already in early stages of extracting information from other commercial real estate documents such as rent rolls and trailing 12-month financials, but a structured format would cost less and reduce the risk of disenfranchising the smaller participants.
After banks get comfortable centralizing their own internal data, the next stage in the evolution will be to layer on public and third-party data sets to further advance more robust property risk management. A major challenge to overcome will be tying these data sets together at the individual property level on a large-scale basis. Unfortunately, this is not as simple as just matching street addresses or geo-codes, especially in densely populated areas or in new construction developments. Again, AI and fuzzy search logic is helping to move us forward.
There are countless untapped opportunities for using data analysis to drive investment decisions and get a handle on a bank’s commercial real estate risk exposure from a holistic portfolio-wide level, rather than the traditional property-specific one.
What if a risk manager at a large financial institution could look back at all the originations on commercial properties and view a dashboard summarizing the bank’s vulnerability or greatest risk exposure?
What if an investor could look at transactions with a particular institution over time or in a particular geographic region?
That’s where the excitement lies: in going to a greater depth of understanding not just into a property’s risk, but a bank’s entire portfolio risk, or risk in a particular geographic area. There is no easy way to do that now, but a few years down the road, the impossible becomes possible. Maybe even seamless.
The Power Of Collaboration
There is a great deal of work that needs to be done and not all of it comfortable. There is tremendous power in bringing together as many different constituencies in the ecosystem as possible and sharing data in new and mutually beneficial ways. Learning how to navigate the impacts will be critical. And the opportunities for revolutionizing how commercial property risk data is managed and made easily accessible for smarter decision making are endless as data sets on properties — that until now were separate and distinct — are brought together to unleash the power of that information.
Property technology is transforming our industry, not disrupting it. Integrating state-of-the-art platforms with data and analytics aligned with what risk professionals need will allow them to do the jobs they’re doing better, smarter and faster. It’s time to embrace the art of the possible.
