Integrate to Innovate
How standardisation between current software systems will bring real estate investment management into the 21st Century
The following case study is an adapted excerpt from our December 2020 whitepaper, ‘Technology and the Future of Real Estate Investment Management’, written in collaboration with Oxford University and available for pre-registration, here. To attend the virtual launch event, please sign up, here.
A fragmented landscape
The successful real estate investment manager of the future will be one that can offer a streamlined reporting structure and a standardised system. This will allow for single assets to be managed under a single software solution which accurately describes the portfolio risk and expected return. Like many issues in this industry, the goal of streamlined reporting is often frustrated by the absence of data standardisation protocols.
While we can criticise property professionals for their reliance on generic software, we can understand that there are many task-specific propositions which are proving too narrow to satisfy the broad range of operational requirements. Because many of those products have a closed technical architecture, they are not able to integrate with other solutions. This leaves many operating teams with a complex patchwork of systems that cannot be integrated into a cohesive ecosystem. As a result, property teams have more systems to manage yet are still struggling to deliver the desired outcomes[1].
To understand this problem further, we gathered together over 30 global participants from leading firms to share their expert insight into the key pain points with current software systems. What do leading real estate investment managers see as the key problems with current technology?
“We see some specific expert platforms which are capable of getting all of the environmental data from all the right sources, but we see a lot of challenges to integrate all of those specific systems into one single decision making or analysis place where we can combine all the data.”
“Too much money is currently being eaten up supporting legacy systems. On average around 60–70% of an IM’s tech budget is going on maintaining old software. Firms are pumping money into legacy systems, trying to make them work for asset management, but they are not built for that and are only useful for certain processes.”
“What we see is that if we have a lot of data and we show which data we use, we always get into a discussion with the client who has a different data format and requires us to follow their guidelines and we lose a lot of information because they want specifics, and not the broad view we want to show.”
“We need a data standard — it’s a must — industry players must stop talking in silos and, as a collective, decide how to proceed. Even within individual companies there are often dissimilar standards.”
“The bigger managers have advantages. The bigger they are, the more properties they have, the more data they have and the more interactions they have with some of the largest tenants in Europe. That’s their USP — to open that up to any AI or data platform is unlikely.”
“We have the tools to give us digitalised data, but we also need the connections and integrations between the software providers to make use of it. There is a lot more that software could do if there was a data standard and better integration of new solutions.”
It was suggested during this roundtable that despite the availability of more and more bottom up data, there are big barriers to using this data effectively. These are: a lack of knowledge about data and how it can be used (how many data scientists work in real estate investment?); low incentives for data sharing; a mismatch between the data that investment managers collect and that which their LPs request; and high sunk capital costs on legacy software creating a reluctance to switch to emerging systems.
These roundtable sentiments are supported by survey findings that suggest that the top reasons why commercial owners stopped using a given tech solution were: it failed to integrate with other tools in their tech stack (33%); the difficulty in utilising its full potential (28%); and the fact that it did not offer enough features (25%)[2]. However, a single data standard and truly open APIs (links between software packages) would overcome these issues, allowing for the integration of software systems and a more streamlined data analysis and reporting process. This doesn’t mean giving away data (and competitive advantage) to start-ups or software providers, quite the contrary. It merely means keeping your data held in a single, industry wide format, applicable across all systems. This will allow for better analysis and reporting of internal data, both between different systems and throughout the value chain. It will also allow for an easier incorporation of external data sources to supplement that which remains proprietary.
“The industry is creating more valuable data than ever before, but CRE executives are faced with fragmented data sources, data duplication and poor integration between applications. The lack of automated and seamless workflows is fuelling the need for a greater integration of applications and the automation of processes” [3]
The need for data standards
It is reported that 45% of commercial real estate teams spend 15% or more of their time managing and organising data, while for 12% of CRE employees this process takes up over a quarter of their time, representing in excess of 3 months of their annual workload[4]. This is likely due to the siloed and fragemented systems used throughout the industry, as well as the complexity of current portfolio management tools.
Source: Altus Group (2020)
While legacy property data standards such as PISCES and OSCRE have long attempted to overcome this issue, few in the industry are even aware of their presence and little change has been effected. With the volume of data now being produced, renewed calls for an industry wide framework are being led by the Real Estate Data (RED) Foundation.
In a recent review of industry standards, RED Foundation discovered that current standards tend to be focused on either a specific stage of the building lifecycle or job function, managed or regulated by different organisations and often applied and acknowledged in isolation. As data is increasingly needed to inform decisions beyond the building stage or job function by which it was created, there is a need for new standards that will allow data to be used by an ever-wider variety of practitioners[5].
“For real estate to meet the challenges of reducing the climate impact of buildings while improving user experience, we will have to work together to link systems and share data. The only way to do that efficiently is by agreeing on standard approaches to data, systems and processes.” [6]
Perhaps an imminent breakthrough will come with the recent open access release of OSCRE’s Industry Data Model, covering many aspects of managing the real estate asset lifecycle. However, in its current absence, start-ups are beginning to target this data integration issue.
Emerging solutions
REST Solution offer a centralised platform for investment and asset managers that enables them to draw accurate and real-time asset-level data. As well as financial data and asset management reporting software, REST Solution incorporates data from brokers, valuation software, asset service providers and ESG data, providing portfolio managers with a comprehensive catalogue of all necessary information required to execute their investment strategy. This cloud-based platform is able to aggregate data across common industry software providers, acting as a single source for reporting metrics and automating the presentation of real time data for portfolio managers, while allowing those in the value chain to continue using their existing software stack.
Assetti are another similar software provider who offer investment managers a single tool for everything from developing portfolio strategy to securing rent roll. They are able to streamline the financial reporting from asset managers to portfolio managers, offering automated visualisations of performance benchmarks. Their platform is also able to integrate with incumbent software, meaning that everybody in the value chain does not need to be trained in the same software packages to deliver insights and are able to use whichever provider they are most comfortable with.
Smart buildings lead the way
One market where new digital data standards are soon to be enforced is in Building Management Systems. Striving towards a fully automated, carbon neutral, ‘smart’ building operating system, BACnet International, KNX Association, OCF, Thread Group and the Zigbee Alliance have partnered to better align commercial buildings with users connectivity needs. The alliances have collaborated under the IP Building and Lighting Standards, a new initiative aimed at improving the integration of smart building products. The aim of the collaboration is to promote a secure multi-standard IP-based infrastructure as a backbone in building automation to replace the less efficient, still-widespread use of siloed solutions. These associations will harmonise leading technology standards, reduce the fragmentation in smart building connectivity and promote a broad acceptance of coexistent solutions [7].
Such an open collaboration between the leading real estate investment management platforms would surely similarly enhance the efficiency of this notoriously un-digitalised industry.
Integrate to innovate
It appears that there are many frustrations with the level of current software available to the investment management industry. However, these problems do not stem from a lack of individual solutions, but a lack of integration between the most widely used platforms. While start-ups and suggested integration frameworks are emerging with the sole aim of overcoming this issue, the high costs sunk into legacy systems is proving a clear obstacle to transition. An open system architecture running on a standardised data format would greatly improve the applicability of technology and the efficiency of this industry. However, this will not prove easy with the protectionist attitudes currently in play.
We are yet to see a single system that serves the end to end transaction and asset management process, but foundations are currently being laid which means that this panacea may not be as far away as many think. We would certainly like to hear from any start-ups targeting such a solution, and as ever, we will be on the lookout for the next generation of entrepreneurs who have the correct skills and knowledge to challenge the real estate status-quo.
To find out how technology will overcome many other issues present in the real estate investment management industry, pre-register for the release of our December 2020 research report ‘Technology and the Future of Investment Management’ by clicking here. To attend the virtual launch event, please sign up, here.
Do you think your start-up solves some of these issues? To get in contact with Pi Labs and pitch your solution, register here.
References
1. Building Engines (2019): Real Estate Tech Gap: A Survey of Owners, Operators and the Opportunities to Align on Innovation and What’s Important. Retrieved from https://www.buildingengines.com/resources/report/the-commercial-real-estate-tech-gap
2. See 1
3. Altus Group (2020): CRE Innovation Report 2020, 26 January. Retrieved from https://www.altusgroup.com/argus/resources/insights/cre-innovation-report-2020
4. See 3
5. RED Foundation (2020): The role of standards in enabling a data driven UK real estate market. Retrieved from https://ca07b499-090b-4462-8c33-13093fdaf50e.filesusr.com/ugd/64a857_e4b18aa210b342d896e2a15838fcddca.pdf
6. See 5
7. Nhede, N. (2020): Tech alliances form new smart building and automation initiative, Smart Energy international Online, 30 June. Retrieved fromhttps://www.smart-energy.com/industry-sectors/iot/tech-alliances-form-new-smart-building-and-automation-initiative/
Images
1. Altus Group (2020): CRE Innovation Report 2020, 26 January. Retrieved from https://www.altusgroup.com/argus/resources/insights/cre-innovation-report-2020
