Technology’s potential to transform commercial real estate practices has been evident for some time, but COVID-19 was the trigger to get many slower adapters on board quickly.
Developers need to know what local or even-hyperlocal needs are when they make plans to bring new product to the market. How do those interests fit with changing market demands caused by external factors, whether a pandemic or the Great Recession of 2008-09?
For example, developers must decide whether to renovate a property or knock it down and build something that might be bigger — or perhaps just more modern. The market today is rejecting aging facilities in favor of natural light, more open floor plans and higher ceilings.
They must consider financial feasibility along with zoning and permitting for that new vision. Is an area zoned strictly for residential or is mixed-use permissible in that location? And would it be worthwhile seeking a variance, if necessary?
The challenge is many developers lack sufficient tools to evaluate these factors holistically. What does the market want, and what does the zoning allow for? Tech tools exist now that let you model all of these elements concurrently.
And while tech tools alone won’t provide all the answers you need when identifying, designing, raising funds and building out projects, employing a combination of these can provide a smart path forward. Here are technology tools that can help:
1. Financial forecasting tools
Beyond its value in site selection and construction design parameters, technology can play a pivotal role in evaluating the financials of a project. Think market data and sales comps for a local area. This is equally important to equity investors as debt lenders. Stakeholders need to see that a deal “pencils” and that they’ll potentially get an attractive return before they make a commitment.
Financial forecasting tools allow you to customize software to your needs and existing conditions to track costs and revenue, measure cash flow and analyze the profitability of a project from initial proposal to completion.
Replacing Excel files and slide decks with a software solution in the creation of a project’s pro forma can be game-changing. Imagine seamlessly projecting net operating income and cash flow through an automated system that factors in expected rental income and operating expenses. This data at your fingertips will guide decision-making for investors and lenders considering whether they’ll move forward on your proposal.
2. Parametric architecture tools
Based on algorithmic thinking, parametric architecture is a newer design concept that, along with building information modeling (BIM), can simulate how a proposed building at its earliest inception will affect the behavior of the people around the building or in the neighborhood as a whole. It’s much more sophisticated than the digital hologram offered through augmented reality or virtual reality.
Using parametric architecture tools, you can predict well in advance of construction how a design decision could affect the quality of life for residents. It is context-based, adaptive and customizable.
For example, if you build a 30-story apartment building, parametric tools help you show many floors of parking are needed based on local factors. If 10 floors of parking are added, how does that impact the walkability of the neighborhood? If you put in no parking, but 500 residents come in, have you just made the parking problem in the neighborhood worse? These questions can be addressed through the tools. The key is finding the right middle ground for the project at hand.
3. Project management tools
When the financials check out and a project is shovel-ready, project management software will keep everything on track at every phase and for all elements off the construction process — from the laying of foundation to going vertical, to the installation of utilities and the final inspections before occupancy. It outlines who needs to be on site and when for each stage.
Tools can also handle job costing to show clearly what the expenses are in real time with each stage and how they track with the given estimates. You get immediate red flags for overruns — think of this as an early warning system. The overall aim is to provide confidence to the people who are bearing all the risk in these projects.
4. Investor portals
The rise of the financial dashboard, well-established in the corporate equities arena, is a boon for investors who may be leery of contributing cash through a real estate partnership without real-time access to financial performance data about the project or fund.
These tools allow asset management firms with a CRM to give investors the full picture instantly of a project or investment that informs their relationship with investors and allows them to have easy access to documents and performance in the cloud at any time.
While the largest developers and asset managers have been the first to incorporate these portals into their business initially, these platforms are on their way to becoming standard at firms across the continuum. Expect to see more smaller developers participating as familiarity grows along with investor expectations for access. Confidence rises with these systems as they’re able to ensure that project is following the highest safety standards for encryption, data storage and authentication.
5. Cybersecurity tools
From a cybersecurity standpoint, smart companies are consolidating toward platforms such as Azure and AWS, which offer an additional layer of protection against data breaches. Anytime you move a small project to the cloud, you have to entirely reassess your cybersecurity posture because it only takes one little pinhole in the entire equation for your organization to be potentially exposed.
Today’s platforms can offer reasonable assurance that they meet the highest security compliance requirements.
6. Data visualization tools
Firms are adopting data visualization tools like Power BI to give life to their metrics. Users can now confidently access their real estate portfolio to make changes in their allocations in an expedient way, akin to the way people make exchanges with their traditional stock portfolio. The data also helps with tax liability planning and compliance.
The portals can rely on incorporate a variety of metrics, including forecasts for cash-on-cash returns, ESG monitoring like projected energy efficiently and climate resiliency of a project to empower investors.
The asset management and development firms that take advantage of the vast potential with these tools are in the best position to attract and maintain productive relationships with investors and other partners through ever-changing economic and market conditions.
How Wipfli can help
Learn more about how Wipfli can help you navigate technology and real estate decisions during a time of dramatic market and economic volatility. Our advisors can help you make decisions about technology tools and services that make the most sense for your business. Thoughtful, proactive planning, not reactive changes in response to immediate events, will help you and your clients. We’re here to help you and your investors stay on track for the long run.
Don’t miss out on the rest of this five-part series chock full of insights for real estate industry leaders. Next up, a look at how to create an effective real estate investment fund during uncertain economic times.