Publications

- March 1, 2019: Vol. 31, Number 3

Artificial sweetener: Cutting-edge technologies are driving innovation in the real estate industry

by Michael Lester

So much time — perhaps too much time — is spent looking at spreadsheets and comparing reports and poring over emails. Artificial intelligence — specifically, algorithmic predictive analytics — was the most talked-about technology of 2018 because it can collect, aggregate and organize data efficiently and much more quickly.

“Automation can lessen the administrative burden on real estate investment management,” points out Riggs Kubiak, CEO of Honest Buildings, “allowing investment professionals to focus primarily on creating value rather than reviewing spreadsheets. The most dramatic change will be moving the asset class toward real-time information, providing instantaneous access to asset-performance data versus waiting for operators to report data that will then require aggregation and review.”

As anyone who has been in the commercial real estate industry for a while can tell you, the volume and pace of data available to industry professionals now are orders of magnitude greater than 20, 10 or even five years ago.

John Sarokhan, principal in investment risk management at PGIM Real Estate, agrees. “Data is being produced at an exponentially increasing volume, detail and rate. The market seems to be at the realization point that some of this data can be used to extract value by making better investment decisions more efficiently. Having a detailed, real-time understanding of exposure, activity and performance at a granular level across a property portfolio is possible today, which allows for better investment and operational risk management.”

In 2018, venture fund JLL Spark invested in two companies with an artificial intelligence focus. One of the companies, VergeSense, uses sensors to record exact occupant counts in office buildings and allows companies to identify usage patterns for conference rooms and other areas. That data can then inform the optimal office layout and deployment, including how many conference rooms are needed, and what areas are over and under capacity.

Another investment, Skyline AI, leverages proprietary artificial intelligence to acquire and manage institutional-grade property investments. “A huge amount of data is generated from the transactional and operating data for a building. Acquiring, organizing and analyzing that data is going to get much easier,” says Mihir Shah, co-CEO of JLL Spark. “If a company can use all the data it has available and combine that with public and other private data to make better and faster decisions, that’s the path to optimizing and creating a better portfolio. Look at Skyline AI — they’re not just creating a valuation model, they’re transacting and creating an investment group that owns these assets.”

This does not mean artificial intelligence will be replacing real estate industry professionals any time soon.

“But as much as AI can identify targets, it does not make decisions,” says Ashkán Zandieh, founder of research company RETech. “AI is more of a suggestion.”

Jerome Revy, consulting associate to Meero at Property Business Accelerator, agrees, “AI may upgrade the user experience as well as the understanding of data or the speed of deals, but it won’t replace the necessary human contact to close a deal.”

“‘AI’ is the wrong word,” explains Michael Levy, CEO of Crow Holdings. “At this stage of the industry, the right word is ‘Information Management.’ There is a lot of work to do to get historical data into agreed-upon reporting and analytical frameworks and systems that are fully integrated. The ability to then use that historical data to make better decisions for the future, which is largely the algorithmic ethos around AI, is the challenge facing the vast majority of the industry.”

Being human

This past year, Altus Group surveyed some 400 commercial real estate executives. Two-thirds — 68 percent — said cost escalation was the biggest challenge they would be facing over the next five years, followed by labor shortages at 65 percent.

“There is a recognition that access to skilled labor is a major problem,” says Ross Litkenhous, global head of business development for the Altus Group, “but the flip side is that there’s not a belief that artificial intelligence, robotics or 3-D printing are going to be game-changers for the industry.” He stresses “construction costs and technology are inextricably linked. Advanced technology in construction and development are primary solutions to help mitigate the risks associated with construction costs.”

Machines can do the dirty work. Robots that look like the love children of Zambonis and motorized wheelchairs scrub floors at airports in Boston, Miami, San Diego and Seattle. Walmart, the world’s largest retailer, rolled out hundreds of autonomous floor-scrubbing machines at the end of January.

Admittedly, some people are going to lose their jobs because they will be replaced by robots. Analytic programs can work faster than human analysts. However, insists Litkenhous, “We are not looking at a doomsday scenario; we are not looking at a sea change in employment in the near term. But as with any new evolution, any new iteration, you see folks losing jobs. You already have a difficult time finding enough folks to do the work we need to do in commercial real estate, and I think technology is going to help alleviate that problem.”

Casey Berman, founder and managing director of Camber Creek, agrees. “Every new technology raises the question: Is it going to replace people? We consistently see some disruption in the workforce through efficiency gains. But, at the end of the day, the work has to be done by people. You can make your leasing team more efficient, but you still need your leasing team.”

Robots in the supply chain

When it comes to robotics, the future is now in the industrial sector. Logistics firms and e-commerce powerhouses such as Amazon.com Inc. have long pioneered the use of robots in the supply chain.

In fact, robotics and automation was identified as the top supply-chain innovation with the potential to disrupt or create competitive advantage, according to The 2018 MHI Annual Industry Report: Overcoming Barriers to NextGen Supply Chain Innovation from Deloitte and MHI. Robotics and automation was selected by 65 percent of the 1,100 supply chain industry leaders surveyed in 2018, ahead of predictive analytics (62 percent), Internet of Things (59 percent), and sensors and automatic identification (56 percent). That is a dramatic increase from 2015, when robotics and automation was selected by only 39 percent of the supply chain industry leaders surveyed.

These logistics robots are handling a variety of tasks. According to survey respondents, the most common uses for robotics and automation in the supply chain are picking, packing and sorting orders (61 percent of respondents); loading, unloading and stacking (56 percent); and receiving and put-away (49 percent).

And robotics are set to show up in the logistics industry’s newest frontier: cold storage and food delivery. According to CBRE Global Investors’ U.S. Real Estate Market Outlook 2019, robotics will be involved in everything from preparing meals to cold storage distribution.

The bottom line

In 2018, Intertrust, which provides administrative services to business clients, interviewed more than 500 real estate investment professionals. More than three-quarters of respondents believed the increased use of artificial intelligence, blockchain and robotics means accounting roles will either be replaced entirely or dramatically changed. Some 72 percent believed these so-called disruptive technologies will have a positive impact on their business in the future, yet only 19 percent say they are being deployed today.

Jon Barratt, head of real estate at Intertrust, explains, “With the hype surrounding disruptive technology, it is easy to lose sight of reality. The findings from this study suggest that, while the real estate industry is positive toward new technology, only a minority of firms are currently putting it to use. The speed of travel remains cautious.”

Michael Lester is a former editorial director of Institutional Real Estate, Inc.

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