Technological innovation has been slower to come on the commercial real estate side than in the residential real estate — mostly because the residential space has smaller loans but a lot of them, which makes the efficiency tech provides attractive — but it’s coming. There was plenty of buzz at the Mortgage Bankers Association’s recent Technology Solutions Conference & Expo in Dallas about technological opportunities in CRE.
“It’s inevitable,” says Bruce Oliver, MBA’s associate vice president of commercial real estate finance policy. “MBA has the ability to bring lots of people, a whole industry, together in a way that few others can. There’s a real energy around what we’ve been doing,” he said.
But one thing that should never be forgotten in the process of evaluating tech products and vendors’ pitches, Oliver notes, is a simple point: Tech is a tool — it is a means to an end, not the end itself.
“When I think about technology, I like to think about it from the highest level. And first that, commercial real estate companies don’t really want technology. What they want — they’re in the business, they want to be more competitive and they want to save money,” Oliver said. “If you can talk about technology in a way that helps them accomplish one of the other of those, then you can have a conversation.”
It’s analogous to the nature, of, say, a loan — which is another tool. “Nobody wants a loan,” Oliver said — they want what the loan enables them to do. “Somebody is an owner with a business property that they want to do something (with). They have a business objective that happens to require financing, and there’s a capital source that would like to do something with their capital. They don’t want to loan, they just want their capital to be deployed, and they just want their building to be able to operate in a way.”
With that crucial point driven home early, Oliver spoke with Mortgage Media’s Dave Matthews about several aspects of technology in the CRE sphere.
- Aside from the economies of scale mentioned above, another reason CRE has been slow to implement technology innovations has been the need to collect and analyze the data needed to plug in and make the tech worth it. “Technology is interesting, but it’s not useful unless you have data to put into it., said Oliver.” “Plus, there may be some resistance due to the potential erosion existing relationships in the space, if technology expands the pool of where a developer or owner can get capital, he noted.. A lot of companies at this point are mostly just looking for ways to fine-tune their processes.”
- With data collection and analysis, though, comes the opportunity to get useful information about the market, information that could change how one does business.
“A lot of the conversations have been, ‘Are we just going to automate some bad processes that we’re doing all the way along and our same way of looking at things?’” Oliver said. “I was thinking, at an earlier session about AI, ‘We have all this data, what could create a real paradigm shift?’ It might be that through AI and big data, we might find that we have a different view of what are the drivers of risk. … That may start changing how I price, how people position; and it may also inform how building owners, managers operate their business. I think there are some real interesting opportunities of things that, later on, will become obvious, but they’re invisible right now.
Ultimately, along with pricing and profitability, the core question is: “How does this tell you a story about ‘is this loan going to be repaid as promised?'”
* Who’s going to benefit more from an influx of technology in the CRE space, large or small lenders? In general, the large ones, Oliver said — but there may be opportunities for the smaller operations to leverage specific tech to carve out their own space.
“I don’t know. Big seems to always win. Big has the money. Big has the data. Big has the volume,” Oliver said. “There would be third-party providers out there that may help bridge the gap, because they create their own economies of scale that can go up and down the whole food chain. But there are just so many tectonic plates moving in the direction of making it harder and harder to be small.
“Maybe technology will enable small firms to solidify themselves as really, really good at some niche that they can just own and say, ‘I’m never going to get the volume, but I can own this niche, and I can stay in business, and provide some unique value.’”
- While the technological game-changers tend to be labeled disruptors, disruption isn’t necessarily a bad thing, Oliver noted. “Disruption is when someone comes along and takes one of the core assumptions underlying your business model and proves it’s invalid. Maybe it’s reached its used-by date, or maybe it was never valid in the first place, because it was never tested against certain circumstances.”
So this type of disruption can lead to a healthy self-analysis — and perhaps a course correction.
“Stripping back every element of the assumptions underlying your business model — most of which you don’t know you’re making — I think is a really useful exercise from time to time,” Oliver said. “You could look for opportunities for disruption, or look for defense or resilience in the face of disruption.”