Quiet data revolution in real estate investing
By Huib Vaessen, CPO at GeoPhy and guest author Matthijs Storm, Head of Listed Real Estate at Kempen Capital Management.
Investors can learn much from the likes of Google and Facebook when it comes to processing and integrating an unprecedented volume of data. We believe that the advent of the availability of an ever increasing amount of relevant data, and equally important, the technological means to process this data, is changing real estate investing forever.
What is the new challenge investors are facing?
The challenge is no longer how to collect data, but rather how to process the now enormous volume of available data. By integrating more property data faster and earlier into the investment process, we can bring about better and more efficient investment decision-making, as the effect of important global and regional trends to the prospects of individual properties becomes more easily identifiable.
Real estate fund portfolios contain numerous properties with widely diverging individual risk-return profiles. To properly assess the risk return profile of each property, a large amount of variable data needs to be obtained, mapped and interpreted. For the first time in real estate investment history, big data is becoming both available and easily accessible. This implies that the traditional real estate investor has the opportunity to enhance its investment decision-making.
All this raw data has become available due to the rise of a new breed of FinTech companies like GeoPhy which collects property specific data, independent of real estate agents, in a highly automated yet sophisticated way. They combine online and offline sources to allow their customers access to high quality, asset specific information on the real estate assets they are invested in. This big data allows for standardized parameters to help investors’ make comparisons and investment decisions with much greater confidence.
To play this new game effectively, real estate investors should learn from the best and the best are Google and Facebook. On close inspection, property investment does not differ significantly from what they do. Their core business is to collect data, structure it and then present it to the customer in a personalised way. Investors add another significant step, we make investment decisions based on the presented information.
How can real estate investors adapt to this new world?
Two building blocks are critical to successfully adapt: firstly, a transparent and consistent investment process, and secondly, the availability of tech talent within the organization
Processing increased quantities of data necessitates a consistent methodological framework, as a consistent decision-making process can decrease the complexity of the technology infrastructure required, while simultaneously also increasing its robustness. This infrastructure is needed to automate the vast flow of data which cannot be processed manually, or only at great additional cost. An infrastructure based on an inconsistent methodological framework can see its efficiency greatly reduced as changes are implemented over time.
When part of the data flow is automated transparency across the entire investment process is essential. As the use of 3rd party data increases the quality assessment becomes more important since one needs to check and double check for any outliers and deviations from the norm. A transparent investment process is the basis for these checks.
The design, maintenance and continuous development of the technological infrastructure require professionals who are adept at computer programming and investing. It takes a seasoned investor to identify data that is relevant to the investment decision-making process, but it takes a professional with the right technical skill-set to access and process that data in an effective and efficient manner. These professionals also need to understand how even minor changes to the overall technological infrastructure can have a major impact further down the line. Based on our experience, we strongly believe that the lines of communication between investor and engineers should be kept short, as we have seen a continuous increase in the supply number of data vendors, but also data processing techniques and technology available.
This does not mean that investing has become a purely technical matter. On the contrary, the proper management of the technological aspects of processing big data has leaves you with more time to focus on the soft side of investing. Kempen’s experience is that the time that can be devoted to the qualitative assessment of our investments, such as site visits, researching and identifying important trends in the market has increased tremendously. The number of global listed real estate companies that can be effectively tracked and monitored in detail has increased fivefold, from 60 to 300. This positive effect is reflected in the investment track record, which has shown a steady stream of excess returns relative to the sector.
GeoPhy supports Kempen with object specific detailed data like an accessibility score per office calculated automatically and taking into account the number of public transport stations nearby, the intensity of the traffic, the proximity to highways etc. This data is processed by an automated and streamlined data collection process that is firmly embedded in the investment process. As such, on a daily basis over 3,000 variables for the 300 listed real estate companies world-wide are collected, including their 200,000 underlying buildings. The team has created interactive dashboards that present these variables in a way that assist them making daily investment decisions. These dashboards can be accessed and manipulated through mobile devices, which are used during meetings with prospects and companies — making those interactions more meaningful for everyone involved.
The speed and significance at which developments in the real estate market are unfolding presents a wealth of opportunities for investors. For the first time in history it is possible to make decisions based on consistent, objective and high quality property specific data. The property market which is known for its opaqueness is opening up which allows investors to better assess the potential returns and the risks involved.
About Huib Vaessen
Huib Vaessen is the chief product officer at GeoPhy, a company that assigns quality ratings to individual buildings based on big datasets. He previously worked at Kempen Capital Management where he was one of the founding fathers of the world’s first data-driven listed property fund. He is a CFA charter holder and was educated as an investment analyst, architect and data miner.
About Matthijs Storm
Matthijs Storm joined Kempen Capital Management in 2011 as head of the Real Estate Team. He previously worked as Senior Portfolio Manager Real Estate Securities for CBRE Clarion Securities in their European office in London. Since 2007, Matthijs was responsible for the European part of CBRE Clarion Securities Global long-only portfolio as well as its European absolute return strategy. Prior to that, he worked as head of European real estate research at Fortis Bank. In 2002, he started his career as a Real Estate Analyst at Kempen & Co Securities in Amsterdam. Matthijs holds an MBA from the University of Maastricht and completed the Executive Management Acceleration Programme at the INSEAD business school in Fontainebleau in 2013. He is also a member of the ICSC (International Council of Shopping Centres) European research group.
