FinTech Met RETech and Disruption EnsuedMay 04, 2016
By Mike Hoban
BOSTON—Whenever a game-changing technology emerges, there is the distinct possibility that the prevailing modes of operation will need to adapt to the developing technology or risk being rendered obsolete. Just as online streaming and Netflix spelled doom for the corner video rental store, panelists at the latest MIT Center for Commercial Real Estate “Real Disruption” series suggested that newly developed interactive technologies will—at the very least—threaten the market share of CRE information providers like CoStar and CRE management software Argus. Microsoft spreadsheet Excel also took its customary beating at the event, with one panelist declaring, “Excel is the most dangerous tool in commercial real estate” – based on its inability to interact with other systems.
The program (sponsored by Saul Ewing) entitled “FinTech Meets RETech” held last Wednesday, at the Boston Society of Architects offices, Atlantic Wharf building, focused on new platforms and applications designed to make real estate financial analysis “faster, easier and more robust.” And while the fate of the industry leaders such as Argus, CoStar and Excel – as well as that of the upstart technologies – remains to be seen, the panel was able to discuss a compelling case that there is much that needs to be improved with existing technologies; and new products presented may indeed be the wave of the future.
Moderated by local industry veteran Tod McGrath, Finance VP at Boston Properties and lecturer at the MIT Center for Real Estate, the program included Ely Razin, CEO of financial data company CrediFi, which focuses on “opportunity-spotting and de-risking” in the financial markets serving the CRE world; QuietStream Financial CEO Robert J. Finlay (as well as Chairman & CEO of development firm R.J. Finlay), who has a portfolio of companies specializing in areas such as investor management & communications, crowdfunding, CMBS research and advice, and commercial loan defeasance; and Robert McLaws, Co-founder and CEO of AdvancedREI, a software platform that allows CRE professionals analyze potential investments based on financials provided by the seller, combined with real-time market data.
Razin says his firm’s mission is to bring financial information transparency to the CRE industry by replacing the manual data gathering methods now used in investment decisions with effective Big Data applications. Two years ago, venture capital firm Battery Ventures approached him to start Credifi with the premise that, “commercial real estate is this huge financial asset class, and (while) other huge financial asset classes have Bloomberg and Thomson Reuters and Standard and Poor and multiple data utilities that sit at the core of the market, this one multi-trillion dollar market known as commercial real estate – doesn’t.”
Describing his firm as the “Bloomberg of commercial real estate,” Razin said his firm increases transparency in the industry by using “much more modern approaches” than established firms such as CoStar and Trepp, which rely heavily on the spreadsheet model. Razin describes Credifi as “very much a Big Data” company that culls data from structured websites beginning at the city level, extracting data from land registries, tax databases and mortgage data from cities in the U.S. That data is then “married” to national regulatory collections that come from the SEC, CMBS and REITs, HUD, Freddie Mac and Fannie Mae as well as other sources. The structured data is then combined with unstructured data mined from other websites and is continually refreshed as the data changes. Razin argues that Argus and Costar are using 20-year-old software and technology, while Credifi uses innovative tools similar in application to Zillow or Airbnb.
The platform tracks over $3 trillion in loans in 50 metropolitan areas across the U.S., on over two million properties (totaling 24.3 billion sf) across all asset classes with a revenue stream. “Our primary focus is not buildings – although we happen to have a lot of building data – our primary focus is the money. Essentially we’ve got a database that tracks mortgage debt that sits on the portfolio or books of individual lenders – whether they’re banks, insurance companies or hedge funds. We sell the information to the financial universe – (those) lenders, mortgage brokers who service those guys, and various classes of investors who invest either in buildings or securities like CMBS.”
McLaws describes AdvancedREI as, “E-Trade meets LinkedIn for commercial real estate,” and has developed a tool designed to help real estate professionals analyze, market and share commercial property investment opportunities. The application establishes 10-year projections providing an accurate model of what the cash flow is likely to be by taking into account the lease cycles on a unit-by-unit basis, rather than applying an average for the entire property. Currently operating in the multifamily, shared office, and warehousing arena of CRE, the application “lets investors, brokers and underwriters with any skill level build more accurate long-term cash flow projections in just five minutes,” he asserted.
“A lot of individual investors spend a ton of time on Excel (analyzing commercial properties), especially for deals under $10 million,” explains McLaws. “The closest equivalent to where we are right now (in terms of data analysis) is the stock market before the advent of electronic trading.There is too much wasted time, and too many documents that don’t talk to each other, and in 2016, we absolutely should be doing so much better.”
Finlay, a 30-year veteran of the CRE industry whose Quietsteam Financial firm has developed a platform specifically designed for real estate operators that effectively ties in all aspects of commercial real estate in one platform. Prior to its development, Finlay recounted, he realized that while he had vast amounts of information on his own real estate portfolio – from general accounting data to financials, to leasing information on the various properties – much of it was located in various systems (Excel, Yardi, RealPage) that did not interact with each other. So his team spent two years building a large scale data warehouse capable of pulling all of the various data types into one database. “In order to have the benefit of data visualization and data monetization, you have to have to be able to get at the data, and that’s where our CRE data management platform comes in,” he explains. “It takes all the data, organizes it, structures it into one single organized place where a company can get to it and use it to make money.”
Finlay also discussed a somewhat controversial topic, the “commoditization” of data obtained from the renters of multifamily properties by the landlords. Operators of multifamily properties have access to their renters’ information – from demographic data (including FICO scores) to the make and model of their cars, to pet ownership – and it has value. “That kind of information is easily commoditizable,” he says. “The data that the property manager used to put in Excel or the lease file, is incredibly valuable. So when you’re buying (multifamily) projects now at cap rates that are compressed, the value is no longer just about the rents.”
Following the event, the fifth in the “Real Disruption” series, Steve Weikal, Head of Industry Relations at the MIT Center for Real Estate, told Real Reporter, “It’s certainly about the data,” he conveys. “And it’s about the bundles of data being able to talk to one another in a way that assists with decision making.”
photos courtesy of Carly Gillis