The landscape for Real Estate investment funds is on the cusp on significant cultural shift. It is becoming increasingly important in the industry to focus on technological innovation as well as more traditional factors. Platforms with transparent, real-time data are playing a huge part in this transition.
Real Estate managers have not been early movers in the technology space. Indeed, a 2020 report issued jointly by the University of Oxford’s Said Business School and leading PropTech VC Pi Labs points out that only 25% of Real Estate investment organisations currently have an established data strategy in place. Moreover, 60% of Real Estate investment firms still utilise spreadsheets as their primary tool to fulfil investor reporting function.
This article seeks to explore the key implications of technology for Real Estate fund managers and the challenges that they are likely to face along this transformational journey.
Impact of technology on Real Estate managers
Technology is not only impacting Real Estate managers’ internal operations but also their investment strategy. At IQ-EQ, we are seeing a number of ‘traditional’ Real Estate managers, who have historically been buying and selling physical assets, now financing companies that are developing proptech innovations. A well-known example is that of proptech company VTS that was backed by three Real Estate investment heavyweights to the tune of $90 million in May 2019.
Indeed, among private technology companies, real estate tech start-ups that are specifically targeting the pain areas of the property market are rising in value and growing at unprecedented rates. These start-up ventures that leverage innovative technology to redesign the experience of buying, selling and owning property are simplifying and opening the real estate market to a new generation of homeowners, and finding spectacular success on the way.
Be it Blend Labs – a cloud-based white label software that speeds up the mortgage approval process – or Roofstock – a Real Estate investment marketplace that allows everyone from first-time investors to global asset managers to evaluate, purchase and own single-family rental homes – the growing prevalence of such proptech start-ups is clearly pointing to an increasing uptake of technology in the real estate market.
Real Estate managers are seeing the positive impact that technology can have on their portfolios. For instance, the use of analytics can lead to smarter decisions about property investments.
We have identified some transformational technologies that are changing the real estate landscape:
- Big Data, AI and ML: Big data, artificial intelligence, and machine learning are important technologies that are fundamental to the drive for more personalisation in applications that provide data delivery to individuals. Using big data, property watchers and investors are also able to get accurate predictions of real estate trends and market movements
- Tokenisation of real estate: Blockchain is powering real estate tokenisation, or the act of converting the rights to a real estate asset into a digital token, which has the potential to solve the liquidity problem that is inherent in commercial real estate investments. Such aspects of tokenisation as property fragmentation will be of great value to institutional and retail investors. Indeed, with tokenisation, true portfolio diversification can be achieved as investors can better mitigate their risks by not having to buy 100% of an asset and can now partially participate
- Use of drones: By deploying drones for photography, digital, multi-perspective site visits are now possible, allowing prospective tenants to view properties safely in a COVID-19 context. Indeed, drones are especially useful for displaying bigger homes and properties, giving a real feel for the size of a place. Drones can also be useful when surveying properties or creating drawings of as-built properties. Finally, drones can also be used to spot potential risks or maintenance problems, which could lower the price of a property or be used in negotiations
- Smart Buildings: With the use of the Internet of Things (IoT), enhanced tracking and monitoring at a building and portfolio level, along with use of portfolio analytics, can result in lower asset risk, more granular valuations, and enhanced portfolio management capabilities. For example, tracking the flow of people can enable commercial real estate owners to analyse occupant behaviour and space usage patterns, while acknowledging privacy limitations. This information may help them identify excess capacity and develop action plans for peak hours, ultimately resulting in more efficient portfolio management
- Automated Rental and Purchasing Property Platforms: It seems certain that the use of technology platforms as intermediaries between buyers and sellers of space will accelerate, to accommodate short-term frictional vacancy and the re-alignment of real estate occupation. The development of websites and phone applications has made possible the creation of highly efficient secondary markets for all things, and it is to be expected that a standardised closed ended property fund format, freed from the trading limitations currently in force, will quickly develop its own secondary market liquidity
- Reporting tools: Investors are expecting full transparency on the reporting provided by Real Estate managers. At IQ-EQ, this has prompted us to develop a bespoke tailored dashboard solution designed to meet the needs of real estate investors. IQ-EQ Cosmos allows for real time data reporting and data analysis of the Real Estate manager investment portfolio. Having a highly customisable online portfolio monitoring solution like IQ-EQ Cosmos it allows managers and investment professionals to focus their time on actually analysing the data and stress testing their assumptions rather than spending endless hours designing, managing, collecting and collating the data to input into such a system. They can then share, download or extract that intelligence in an easy-to-digest graphical or pictorial form with colleagues or investors to enhance reporting or to answer urgent queries or questions. This helps eliminate the risk of running hundreds of excel spreadsheets that are often held by a single person within the organisation, which can pose massive key man risks.
Challenges facing real estate managers in technology adoption
While it is clear that the real estate investment management sector is at the beginning of a process of digital transition, it is equally evident that there are many barriers inhibiting the widespread application of technology. This is most likely due to the lack of a regulatory framework and industry standards regarding the ownership and sharing of digital data, as well as a lack of knowledge of the available solutions.
Culturally too, there is a lot of resistance to technology adoption as many real estate managers are currently benefiting from what is perceived to be a trusted and functional system without risking the sharing of digitalised data through a central platform. While systems exist to help select target properties and evaluate their acquisition, many feel that existing methods of fundamentals-based analysis are still superior to technology-based ones, and almost half of all fund managers and investors agree that better matching of buyers and sellers through technology will mean more competitors for targeted assets. However, fund managers are excited about the ability to quickly screen a high volume of projects in more detail, allowing them to more precisely focus their investments on specific sectors or situations.
Harnessing the benefits of the new technological era
Real Estate managers are now being propelled into a new technological era, where there will be no turning back, and they are already starting to see some of the benefits to their portfolios from centralising portfolio data and obtaining real-time insights.
In an uncertain world, this will become all the more important as real estate managers seek to identify potential risks and opportunities and to harness the power of data to reveal new components of value.
Tamás Márk is head of Real Estate in IQ-EQ’s Luxembourg office. An experience leader in the sector, Tamás has over 15 years in the tax and corporate services industry. Tamás is a chartered accountant, a certified tax advisor and is MRICS qualified. He is also an active member of numerous Luxembourg-based industry working groups.
Hugh Stacey is executive director for Investor Solutions following a career in the British Army he has worked in the industry for over 10 years. He leads on IQ-EQ Cosmos, an innovative investor solutions platform providing users the tools to manage investments to give transparency and the ability to turn data into intelligence.