While industries such as finance and healthcare have embraced digital technologies to streamline processes and improve customer experience, the real estate industry has been slow on the uptake. Why? Several reasons are likely.
First, apart from a handful of large firms, the real estate business looks more like a cottage industry than a mature industry. It is highly fragmented, with many small players and little in the way of standardized practices, policies and procedures. It lacks a killer solution.
For widespread adoption of a technological solution to occur, users need to be comfortable with the standards embedded in the system being offered. But, as noted above, in the real assets investment business, there really are no standards. While several industry trade associations have attempted to agree on and promulgate standards, none can enforce or monitor compliance with those standards.
Complicating matters further, organizations representing different sectors of the industry have attempted to develop their own standards. While some of these standards mirror each other, too often they conflict. With multiple sets of standards floating around the industry and no means to enforce any of them, is there any wonder no one has yet come up with the killer solution to managing data?
Another barrier to creating the killer systems solution for the real estate investment business is that many firms — especially longstanding ones — have developed their own legacy systems for underwriting acquisitions and managing assets at the property and portfolio level. Older systems are more convoluted, given how many people have worked to develop, program and maintain them over time.
Of course, many entrepreneurs have attempted to create the killer app they believe could and should become an industry standard. Almost all have failed — and failed dismally — because they have looked foreign, complex and illogical to potential users. Furthermore, asking someone to adopt a new system is essentially asking them to temporarily become incompetent in a critical skill area where they currently feel competent. It takes time to learn how to use any new system. And most if not all humans are hardwired to shun the unfamiliar and resist change.
Yes, there are a handful of standardized systems professionals have come to rely upon, but in most cases, the use of these systems is repeatedly augmented by the use of spreadsheets.
The problem, as our friends at RealFoundations (a consulting firm focused on helping investors and their investment advisers manage their enterprises more efficiently and effectively) point out, every time you port data from one system to another, you run the risk of data leakage, data corruption and data loss. In most organizations, porting data between systems is going on constantly on a second-by-second basis throughout the organization, which means data is constantly at risk of being corrupted or lost. And that means the data almost everyone is working with in the industry is somewhat suspect.
I’ve written several times about the immense waste of time that goes on throughout the industry because of a lack of a standardized approach. And I’ve saluted firms such as Juniper Square that have valiantly attempted to establish themselves as the standard portfolio management platform for the industry. What the industry would gain in cost savings from adopting such a platform as a standard would be immense. What it would lose in terms of competitive advantage would be minimal.
But, for all the reasons noted above, firms such as Juniper Square have been fighting a difficult battle. (When I think about the daunting task their sales professionals face, I’m reminded of the classic cartoon showing a Gatling gun salesman standing outside a Civil War general’s tent, with the general saying, “I don’t have time to listen to your sales pitch about your wonderful new weapon. I’ve got a battle to win.”)
While the real estate industry has been slow to adopt technology, there is a growing recognition that technology can play a critical role in streamlining processes and improving customer experience. The industry needs to overcome resistance to change, invest in training and development programs, and work toward greater standardization and collaboration to fully embrace technology and move toward a more efficient future. Until that time, a lot of money will continue to be wasted in maintaining and feeding systems that in the final analysis don’t create any real competitive advantage.
What the industry actually decides to do is up to the firms that comprise that industry, of course. Meanwhile, whatever the industry decides to do, it’s important to be careful. Be very careful. It’s a wacky world out there.
Geoffrey Dohrmann is president and CEO, publisher and editor-in-chief of Institutional Real Estate Inc., parent company to Real Assets Adviser.