Lessons from CRE Titans

On October 9th, I came into work extra early. Our inaugural redIQForum was slated to start at 8:30 AM. We had a killer panel of heavy hitting regional players. We had an ambitious topic: “the intersection of technology and multifamily transactions in the tri-state market.” And until the night before, we had a polished moderator from a well-known local PropTech VC firm all lined up. Just before the event, he’d sent an email with his topic list attached saying his wife was about to give birth and he couldn’t make it. It’s kind of hard to be mad at a guy when he has basically the best excuse in the world. But it meant that I had to step in at the last minute to moderate, and if I’m being honest, I was more than a little nervous that I wouldn’t tease the insights out of the panel as well as he would have.

If you’re involved in commercial real estate in New York or the tri-state area, the group of experts could not have been better. The roster included:

• Adam Weil, CBRE Valuation NYC, who’s appraised $7 billion worth of assets;
• James Kinsey, Principal and Head in Tri-State Investment Sales at Avison Young;
• Alan Feldman, CEO of Resource, a major multifamily REIT, and;
• Ben Thypin, the co-founder of a data-driven investment shop, Quantierra.

So what did we learn about today’s multifamily market?

Supply is tight:

Multifamily properties are under-supplied in this market as a whole. With historically low borrowing costs coming up a bit, prices make margins even tighter, resulting in more time spent underwriting each month to find deals that work.

Winter is coming:

A decade from the beginning of the last recession, investors, lenders, and brokers are in the unenviable position of predicting when—and where—the next downturn might begin. None of the panelists suggested that they expected transactions to halt like in 2008/9, but it adds uncertainty and risk into rent growth assumptions.

How do you break into commercial real estate:

I went ahead and asked all the panelists what advice they would give to folks just starting out in the industry and here’s what they said:

• Adam: “Find good mentors”
• Alan: “Learn how to write. It starts with clear and effective emails.”
• James: “Invest early. The sooner you can become a landlord, the better.”
• Ben: “Learn to code”

There’s more coders these days:

All this is happening as an unprecedented volume of money— $3 billion dollars last year alone—is being poured into PropTech ventures with the lofty ambitions of either disrupting current players or offering new and valuable services. That said, everyone agreed that the extra money was still only incrementally transforming the industry so far.

It’s widely acknowledged that the commercial real estate industry is behind others in adopting new tech offerings. Part of that is because commercial real estate brokers, lenders, and other CRE professionals all have divergent needs. Plus, real estate is an industry largely focused on relationships. But most of the panelists agreed that the biggest factor is the there is little incentive to change until the hard ROI is clear and the risk has been taken by someone else. Alan Feldman quipped that until people will pay an extra $20/month for a toaster they can control with their smartphone, landlords won’t be offering toasters.

All four panelists agreed on one thing: technology creators have developed solutions to address most low-hanging needs. James Kinsey noted that even five years ago it was easy to find an owner’s contact information for buildings throughout the country. Service providers addressing that need have incrementally improved accuracy and introduced new data points, such as personal emails, but offerings remain more or less the same. Ease of access to data contributed to the early emergence of that solution. But, as Ben Thypin reminded us, necessity is typically the mother of invention, not ease. The quick evolution of technology solutions for developers focused on underwriting ground-up development projects (think ProCore) and the quick adoption of those solutions was expedited because of the difficult path to success in that niche.

What problems still need solving?

Alan Feldman and Adam Weil both expressed that complex individual projects—assessing the value of an asset that last sold for $100 million, or environmental remediation at a large-scale apartment complex—still want for software to allow the parties involved to communicate and make the best decisions. There’s also a lack of meaningful offerings that allow those in the acquisition space to accurately gather and standardize the information they receive. At Quantierra, Ben Thypin requires detailed analysis to anticipate and predict the behavior of sellers and other buyers, but relying on shoddy public data that has not been accurately gathered or standardized can mean the difference between a successful close and a bid that goes nowhere.

The Net Net:

Having the right knowledge is essential for any company actively acquiring multifamily properties, and it always was, even before the digital age. But, as the supply of deals that meet investment criteria thins, acquisition teams, brokers, lenders and others suddenly need tools to sour the market more quickly and thoroughly. For multifamily in this area right now, the increased pressure from construction and borrowing costs is going to result in more scrutiny over every investment than it would before, but that won’t stop transactions from happening. James commented at on point: “If investing in commercial real estate is what you do as your profession, you won’t stop just because the market is soft. You buy and sell in both up and down times. No matter what the market, you hit ‘grand slams’ by having more at bats, period.”

If investing in commercial real estate is what you do as your profession, you won’t stop just because the market is soft. You buy and sell in both up and down times. No matter what the market, you hit ‘grand slams’ by having more at bats, period.

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