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Technology continues to be a catalyst for change across every industry and company, and real estate is no exception. The year 2020 was a watershed year as COVID-19 accelerated the adoption of technology in the real estate industry in much the same way as the global financial crisis provided the catalyst for the growth of fintech.
The global pandemic turbocharged the need for all facets of real estate to embrace technology. Initially, this was to protect the business by maintaining ongoing operations in a remote capacity, but technology was also required to rapidly and successfully pivot to build value in the pandemic economy. The urgency and suddenness of lockdowns highlighted the need for all the sector’s incumbents, regardless of size or asset class, to innovate to meet customers’ changing needs and technology was, and still is, a critical facilitator of this innovation.
The real estate industry is moving forward rapidly when it comes to technology adoption. Several prominent names have emerged as major technology adopters (and in certain cases co-developers) of state-of-the-art tools to increase building operational efficiencies and improve the ways we live, work, play and stay in the built environment. The success to date of first movers should provide reassurance to companies that are less mature (from a technology standpoint) that now is the time to accelerate their progress. Whether leading the way or progressing as a ‘fast-follower’ the question remains the same: “How do we leverage technology and innovation to unlock value?”
During EY’s recent Directors’ Roundtable, Umar Riaz, EY America’s Real Estate, Hospitality and Construction Consulting Leader, presented the results of a recent survey EY conducted on the state of real estate technology and the adoption of real estate technology in the industry. “We surveyed over 100 real estate market participants across the globe, and what we found is that over two-thirds of respondents identified the need to adopt new technology solutions as a strategic priority”, noted Riaz.
Riaz was joined by Kevin Danehy, CEO in North America of Willow Technologies, Evan Regan-Levine, Executive Vice President at JBG SMITH, and Robyn Beavers, Chief Executive Officer & Co-Founder at Blueprint Power. EY’s Kyle Bolden, East Region Market Segment Leader for Real Estate, Hospitality and Construction, moderated the discussion as panelists assessed the business case for real estate companies to adopt Proptech solutions and technology solutions overall. The panel also explored the Board’s role in helping real estate organizations build strong, resilient roadmaps for technology infrastructure and digital automation.
Riaz and the panelists highlighted how major impediments to more wide scale adoption impact the ability of companies to identify which technologies are best for them and successfully adopt new tools. They also gave examples of how leading real estate companies are finding ways to overcome these challenges which will position the industry for a period of rapid technology adoption.
Shifting away from an “if it ain’t broke, don’t fix it” mentality
The real estate industry was slow to adopt new technology when compared to other industries. Skepticism around the value of new tools, underinvestment, and applying an “if it ain’t broke, don’t fix it” mentality was all too prevalent. But was – past tense – is the key word. Riaz highlighted that as the industry’s attitude toward technology and innovation has shifted, real estate companies are open to deploying technology solutions because “people recognize that technology can add a lot of value to their business”. Conversely though, “there’s a lot of stress because they don’t quite know how to figure out which technologies are best for them”.
EY’s survey results highlight how opinions have evolved. When polled on the business case for adopting technology, 69% of real estate owners identified technology adoption as a high strategic priority (a further 24% rated it medium). 64% subsequently cited increased efficiencies and reduced costs as their number one reason to adopt new real estate technologies, followed by accessing new revenue streams/increasing income, accessing new metrics such as ESG data points, and helping make better investment decisions.
As EY’s survey highlights, there are few bigger issues than the challenge the industry faces around collecting data at scale and applying advanced analytics to deliver near real-time business insights. 87% of respondents see better tools to capture and make use of data as a business priority and, from a technology standpoint, it is the number one area companies expect to accelerate investment as a result of the COVID-19 pandemic. Real estate companies that have been early adopters in this area were better able to capture near real-time data at scale (e.g., deploying smart building technology to predict occupancy patterns and performance needs to reduce costs) which proved to be invaluable with the unprecedented overnight changes brought about by COVID-19.
Addressing the lack of fully integrated, end-to-end solutions
A second key issue for the sector is that the Proptech industry currently lacks fully integrated end-to-end solutions which then makes piecing together the required technology tools within a specific organization challenging. “There is a plethora of technology solutions which don’t talk to each other,” said Riaz. The integration is then left up to the real estate company that adopts these technologies. And if you don’t have the capabilities in house, then it can require significant financial and (external) human capital while putting a lot of stress on the organization to integrate those technologies. The lack of integration of new systems with existing systems was cited by 58% of survey respondents as a barrier to adoption.
This lack of fully integrated end-to-end solutions impacts the ability to provide a seamless user experience. This is a problem not least because expectations today are so high; as one REIT executive said, “people have grown to expect that a solution will do everything immediately”. COVID-19 is accelerating the need for a frictionless future for real estate whether it be support for sales and leasing to IoT based property facilities, management, digital twin technology, tenant engagement and investment management, etc. Staying connected – a basic human requirement – is the common denominator that will drive real estate technology and innovation.
Proptech companies have a major opportunity to shortcut the path to value creation for themselves and their investors. Tenants’ needs have shifted – they’re not focused on the same space types or amenities they were a year ago and real estate companies are only beginning to adjust to the seismic shift taking place in the industry. At the same time, Danehy noted that “there’s probably a dozen different tenant engagement systems that offer the promise of being able to enhance the visitor experience and the employee experience” but very few seamlessly integrate with a building owner’s current systems. To succeed going forward, true customer-centricity is tantamount and Proptech companies that provide this capability have the potential to grow rapidly.
Regan-Levine, spoke about JBG SMITH’s desire to “create the best possible environment for the best tenants” by being intentional about putting the tenant experience at the center of the REIT’s digital transformation. Amazon selected the public REIT as the development partner for its second national headquarters in Northern Virginia, now known as National Landing. Regan-Levine highlighted JBG SMITH’s strategy to enhance National Landing’s digital capabilities through its acquisition of CBRS Spectrum, a 5G provider, “due in part to the company’s desire to attract cutting-edge tenants and to lay the foundation for a broader smart city”. It will allow enterprises to connect everything and everyone in real time and transform customer engagement and experiences.
Facilitating widescale adoption of technology in real estate will require change makers such as venture capitalists and entrepreneurs to partner with real estate owners, operators and developers to deploy fully integrated technology solutions that meet end-users’ expectations. Introducing new digital technology solutions without providing post-implementation support and ongoing product development, for example, will lead to disgruntled users. Taking a hyper care support approach – whether it be tenant building apps, smart apps for construction work, financial close management software, etc. – will drive better adoption rates by minimizing issues or challenges of a new system.
Closing the technology talent gap and developing solutions across multiple sectors
Several of today’s real estate industry leaders have emerged from the tech world, bringing with them a desire to streamline processes and facilitate innovations in service and product delivery in a world where consumer expectations are fundamentally changing. Take for example, Robyn Beavers, CEO of Blueprint Power, a NYC-based real estate tech company that turns buildings into revenue-generating clean power plants. Beavers began her career in 2004 at Google in Mt View, CA, reporting directly to the co-founders working on strategic initiatives as they took the company public. She went on to develop Google’s first business unit focused on incorporating clean energy generation across the company’s global operations.
Many industries are naturally interlinked yet have—due to traditional practices—remained isolated. Beavers recognized that by thoughtfully combining the built environment with the energy infrastructure, business owners could attain new revenue streams and equity sources previously not available. When asked why she chose to bring Blueprint Power’s disruptive and innovative strategy to the real estate industry, Beavers responded, “I actually think real estate owners are the ones that are the best partners because the buildings themselves are actually one of the most valuable pieces of the future energy grid: Real estate owns the buildings that can host distributed energy infrastructure; they fill the buildings with tenants that provide the load that the grid needs to serve and receive support from; and they know how to invest in and build physical assets.” Danehy added that being able to generate electricity and shift to renewable energy sources allows building owners to not only reduce costs, but to also set forth sustainability targets for carbon neutrality as institutional investors don’t just expect an environmental, social and governance (ESG) focus, they demand it.
As competition for talent increases, prioritizing technology will become a key differentiator for real estate, the world’s most important and largest asset class. Several real estate market participants including owners, operators and developers, VC firms, and academia have begun to work side-by-side with tenants to develop research and development laboratories to accelerate innovation in the built environment.
Leveraging technology to become a more sustainable industry
While the real estate sector is not known as a first mover when it comes to digital transformation, the industry has an opportunity to draw upon lessons learned by other industries that embraced technology to build personalization, improve operating efficiencies and deploy environmentally friendly solutions.
Consider how pre-pandemic, technology gave flight to customer experiences in the airline industry. According to one report, more than 91% of travelers use an airline’s mobile app for processing check-ins (SITA’s 2017 Air Transport IT Trends Insights Report). With the advent of the smartphone, airlines have leveraged technology as a means to reduce the stress of travel by simplifying the booking and payment process (including finishing bookings on a different device), facilitating post booking interactions (nudging customers towards seat selections), positioning amenities (rental cars), customizing the in-flight app experience and providing content updates (weather, flight status).
Riaz pointed out that “almost all technologies go through an S curve, where in the beginning of the technology you’re putting all the building blocks together to enable a large-scale transformation, and then it rapidly proliferates. I think within real estate we’re in the beginning of that S curve in the sense that, we’re putting all the building blocks together” to enable for digital transformation within the next 5 – 10 years.
How Boards can help their organizations leverage technology
The Roundtable concluded with each panelist sharing their views on how Boards can help their organizations leverage technology to improve operational efficiencies, create new products and services, and enter untapped markets. The following five questions can serve as a guide for Board meetings, helping convey preparedness and confidence regarding what lies ahead when it comes to adopting real estate technology.
1. How are we leveraging technology to empower the organization to make better decisions, identify new sources of revenue, enhance the customer experience, reduce costs? As vaccinations against COVID-19 are progressing worldwide, thereby encouraging people to get out of the house more often, many experts agree that real estate has the potential to lead the way in the recovery process. Expect to see a significant uptick in and acceleration of new technology solutions across all real estate asset classes. For example, in multifamily, entire touring and leasing processes have gone touchless. Renters can book apartment tours on the property’s website and view the property at their own pace, while maintaining social distancing. By using an app to verify their personal and financial information, communities and property ownership can safely manage guest and delivery management. The single-family rental (SFR) model has benefited from technology as the most innovative SFRs are leveraging technology to deploy mobile maintenance teams and manage inventory. And investors have a wealth of financial data at their fingertips on the neighborhoods they are prospecting, providing them insights on home prices, residents’ length of stay, desirability of the communities’ amenities such as schools, public parks, etc.
2. We’ve recently made (or are considering) an acquisition. How do we leverage technology to effectively integrate the new company and ensure that the value promoted by the acquisition materializes into real-world benefits? Technology integration is critical, yet one of the most difficult aspects of any merger or acquisition. Designing an effective plan for technology integration that meets broader business goals should involve careful assessment of both buyer and target. This assessment should identify any redundancies in people, systems, infrastructure, applications, vendors, capabilities, and costs. It should also identify opportunities to add value through integration or collaboration for areas in which there are gaps that need to be addressed. An effective post-merger integration process hinges on being able to successfully integrate software for accounting, tax, leasing, asset management, FP&A, CRM, HR, etc.
3. Do we have the right level of talent in-house to innovate? The successful implementation of new technologies – both for the front office and back office – necessitates the need for the real estate sector to source qualified CIOs, data scientists, cybersecurity experts, and enterprise architects. Yet, these resources can be hard to find these days. In a recent IPO filing, a real estate technology company disclosed that it is looking to recruit top talent from the most distinguished companies in other sectors, such as the technology industry.
Real estate organizations should consider a combination of hiring permanent resources, upskilling current employees, and/or utilizing consultants to fill the technology gap. Additionally, it is equally important to have some tech expertise on the Board itself.
4. Where does our organization reside on the technology maturity curve? Assessing the maturity of your organization’s technology can help Boards and management teams understand how far they’ve come, how far they have to go, and whether they are lagging or leading on the technology front. A technology maturity assessment may help your organization define clear, industry-oriented positioning with technology as the enabler or differentiator that you can then use to develop a tech road map and guide your future strategic direction. Boards should understand the metrics and KPIs management uses to measure and quantify the company’s progress towards moving up the maturity curve.
Cybersecurity must also remain top of mind. As commercial real estate begins to increase its reliance on new and disruptive technologies, the sector must ensure day to day resiliency to avoid buildings becoming the vessel for cybercrimes like ransomware, malware and phishing attacks.
5. How are we leveraging technology to advance our ESG initiatives? As public policy shifts toward “green” initiatives, there needs to be a closer relationship between technology and sustainability. For example, Blueprint Power, is a technology system that helps owners of infrastructure assets generate compelling excess returns by monetizing surplus clean electricity. Another example is Willow, a smart building technology company, which is leveraging digital twin technology at EY’s new headquarters at 1 Manhattan West. A digital twin, or virtual copy of a building, collects, organizes and analyzes data and can help building owners get a handle on just about everything in the building, including indoor air quality, water and electricity consumption behaviors, and predictive maintenance. And Enablon has created software that simplifies ESG reporting by automating and centralizing the collection and tracking of ESG data. Enablon’s cloud software platform can help users collect and manage social and environmental data in compliance with industry standards against which to align and report ESG metrics, such as GRESB, CDP and GRI frameworks.