Data has emerged as a critical asset in the rapidly evolving commercial real estate industry. However, the sheer volume of data can be overwhelming, and without the right skills and tools, its potential can go untapped. This is where commercial real estate data analysts generate value for your organization and stakeholders. These professionals have the expertise to sift through vast amounts of data, extract meaningful insights, and drive strategic decision-making.

Let’s delve into the importance of assessing your data capabilities, the crucial role of commercial real estate data analysts, and how to find and train these invaluable team members.

1. Evaluating your data capabilities: The first step toward growth

Every commercial real estate enterprise, regardless of size, is a treasure trove of data. From underwriting deals to analyzing financials and performance, data is everywhere. However, the ability to harness this data effectively varies significantly across organizations.

To assess your data capabilities, consider the following questions:

• Can your organization centralize data from different sources into one secure place?
• Can you access this data reliably and consistently?
• Can you define and monitor Key Performance Indicators (KPIs)?
• Can your organization act on data-driven insights and monitor the outcomes?
• And finally, can you spot and model macro and micro trends, and project their results?

As your data collection systems evolve, your organization needs to keep pace. This involves developing advanced capabilities to leverage all the usable data. This progression often includes moving from having general analysts to employing data analysts, and in some cases, data scientists.

2. The role of commercial real estate data analysts: Why you need them

While not every firm will require data scientists, the importance of data analysis in a CRE enterprise cannot be overstated. Commercial real estate data analysts take structured data and run mathematical calculations and analyses on it, a process that is invaluable when dealing with large volumes of records. However, most emerging and mid-market firms don’t need to dig so deep as to require a data scientist.

Every CRE leader should make data and analytics a core business component. The more data you have, use, and analyze, the more powerful your organization will become. Fortunately, this shift towards becoming data-centric doesn’t have to happen overnight. It can be done gradually or with the help of companies that provide data management solutions.

The key is to combine your data with a business intelligence tool to equip your analysts to tap into the power of your organizational data. Analysts with the right tools are the bridge between your data and the insights it can provide.

3. Building your team of commercial real estate data analysts: how to find and train them

Once you understand the importance of having commercial real estate data analysts on your team, the next step is to identify the skills needed, assess if you have someone with those skills already, or decide if you need to hire externally.

To help evaluate potential analysts, let’s review more about their roles. A CRE analyst needs to understand the business, how data increases the company’s value, and how their duties help the organization become data-centric. Their responsibilities include bringing data in, ensuring its accuracy, organizing it, storing it, and using it for visualization, reporting, analysis, or activation.

Many CRE firms already have individuals with data analysis capabilities. These are often the experts who are proficient in Excel. They can evolve into exceptional data analysts with industry- and niche-specific training. It’s typical to encounter candidates who shine in either data or real estate during the hiring process, but rarely both. In these instances, targeted education can effectively resolve this skills disparity.

Several education platforms offer data analysis, cleaning, collection, and visualization courses. However, it’s advisable to avoid overly technical programming classes, which can be overwhelming and unnecessary for most analysts.

Once trained, your analysts will examine data and use tools such as business intelligence to extract insights from it. The first step is to translate the data, and once structured, a business intelligence tool can be used to understand the data and its implications. Then the third step is implementing a data management platform, either an existing solution or custom-built software.

Building a team of CRE analysts, investing in technology tools, and incorporating data processes into all aspects of your business requires significant time, effort, and money. However, the investment is well worth it.

Becoming a data-centric powerhouse

In the world of commercial real estate, data is a powerful asset. But its potential remains untouched without the right capabilities and people to analyze it. Commercial real estate data analysts are instrumental to unlocking this potential. They allow you to harness the raw data and actionable insights, driving growth and profitability for your enterprise.

The power of your data lies not just in its collection but in its analysis and application. Investing in your data capabilities and building a team of skilled CRE analysts offers rewards far outweighing the costs. Analysts can transform your organization into a data-centric powerhouse with the proper education and tools.

Learn more about the importance of including data analysts in your team in my book, Beyond the Building.

The economy and commercial real estate industry are undergoing a significant market recalibration as consumers and organizations adapt to shifting demand and supply fundamentals, capital market trends, and stakeholder expectations. CRE operators and investors must adapt and leverage innovative resources and strategies to maintain and grow their enterprise value and returns.

Let’s look at seven proven approaches to staying competitive and keeping revenue growing.

1. Build a value proposition around innovation

Our business and consumer culture today is tech-oriented. Whether evaluating a service provider or considering purchasing a product, you’ll likely favor solutions incorporating the most advanced tech.

Why? Because you know you’ll experience the greatest benefits, whether in productivity, cost-efficiency, safety, risk reduction, or future-proofing your operations.

You can put this idea to work by acting like a technology company, i.e., using the most innovative tech and methodologies available to provide top-of-line solutions/offerings to your stakeholders.

In doing so, you can identify opportunities, differentiate your firm, and generate the most enterprise value. Emphasizing innovation in your brand positioning demonstrates your forward-thinking business approach and ensures you won’t become obsolete — in fact or perception.

2. Emphasize creating value for your stakeholders

Building on the first point, we must create the most significant value for our stakeholders, e.g., customers, tenants, investors, partners, vendors, the community, and the environment. 

Coincidentally, generating value for these parties is the top priority in innovation. Stakeholders buy into our organization and vision because we present the promise (and proof) of outstanding financial returns, social and personal upside, experiential benefits (convenience, insight, transparency), and minimal risk.

As soon as value stops flowing, stakeholders will seek opportunities elsewhere. Focusing on giving fosters loyalty and goodwill, reducing churn.

3. Invest in data and analysis

Continuing the message of innovation, let’s talk about harnessing data. Data is among the greatest assets in our organizations. It represents a wealth of knowledge and insight regarding our investment and enterprise performance (track record), market conditions, and growth opportunities.

Investing in data and asset management technology to capture, organize, analyze, and share our data facilitates data ownership/security, situational awareness, strategic planning, decision-making, and collaboration. It also provides transparency and insight to stakeholders, assuring them of our progress and potential.

4. Keep out the water — optimizing expenses

As rent growth has cooled and inflation persists, managing and reducing expenses to maximize NOI is imperative — we can’t rely on rent growth and appreciation to drive value.

While there’s still potential to optimize rents by keeping our assets at peak appeal, economic pressures mandate we also operate at peak efficiency. 

Of course, we should do this anyway to pass on value to our stakeholders. But in choppy waters, it’s a necessity to eliminate even the most minor leaks, i.e., sources of financial waste, that could sink us (and our track record). Data and asset management technology streamlines and automates much of the expense optimization process — innovation!

5. It’s all about the tenant/user

For many firms in the commercial real estate industry, tenants are top-priority stakeholders. Without them, all the capital and talent in the world don’t mean a thing.

Consequently, operators and investors must embody a spirit of service for their users/residents to ensure satisfaction, minimize turnover, and keep lease signings flowing.

Here are a few tips to better serve tenants:

• Listen to what they need and want and give it to them (amenities, terms, flexibility, etc.).
• Offer comfortable, healthy, safe, stylish environments that support satisfaction, productivity, and well-being.
• Provide a portal to interact with management, maintenance, and other residents.
• Hold community events to support rapport among tenants and staff.

6. Develop alternative revenue sources

If we can’t rely on rent increases and appreciation to push up value, what else can we do besides cut our expenses to improve NOI/margins?

We can look for and implement opportunities to generate ancillary revenue, that is, income generated by means other than rent. 

There are plenty of creative options here, including paid:

• Parking. 
• Vending.
• Laundry. 
• Childcare.
• Onsite Retail. 
• Storage Facilities. 
• Meeting Rooms.
• Advertising Space.
• Janitorial/Housekeeping.
• Event Space (clubhouse, rooftop, etc.)
• Premium property-wide WIFI.

Those are just a few ideas, and you can get very imaginative — look at what unique existing and potential opportunities your asset holds.

For residential properties, the work-from-home trend presents many ways to provide value and convenience that residents will gladly pay for. And for commercial assets, particularly those struggling with occupancy rates, these amenities add appeal and function for tenants.

7. Build an A-Team that knows how to handle and harness the economy

Your strategy is only as good as the team that conceives and supports it. Assemble an all-star team of executives, directors, advisors, managers, analysts, and consultants with experience navigating and prospering through market cycles.

Though demand for talent and compensation expectations are high, retaining a team that knows how to plan your approach and get it done is worth the effort and expense. 

Once you have your dream team, give them all the support — vision, transformational leadership, constructive feedback, training, recognition, and rewards — to get their best work and earn their buy-in and loyalty.

 

Market Recalibration = brighter horizons

Indeed, it’s a challenging environment for commercial real estate operators as the market recalibrates in the wake of the pandemic and subsequent inflation and monetary policy.

Yet, those who embrace innovation, generate superior value for all stakeholders, harness their data, manage expenses, go above and beyond for tenants, drive creative revenue, and assemble the best teams will sail through uncertainty and find brighter horizons.

Many real estate development, improvement, and management projects face predictable challenges on the journey from first thought to project exit. What the most successful operators and sponsors have in common is collaborative planning and operations throughout the project lifecycle to address potential obstacles and embrace opportunities.

Let’s look at how the integrative process unifies teams to support operational efficiency and positive outcomes by reducing construction costs, waste, and budget overruns, keeping development on schedule, promoting robust returns, and elevating the owners’, investors’, and tenants’ experience.

1. The integrative process and how it works

The integrative process is a term and methodology rooted in sustainable design. The U.S. Green Building Council uses it as a framework for construction, design, and operations projects working toward LEED (Leadership in Energy and Environmental Design) Certification. 

However, the concept applies equally well to the process for all real estate projects. Moreover, every business initiative can benefit from organized, collaborative planning, implementation, and monitoring.

At its heart, the integrative process is about the teamwork of every party involved in each phase of a project’s lifecycle. While this seems like an obvious approach to adopt, cooperation and collaboration are often limited to a few teams participating in one or two disparate phases of a project.

Some potential participants include owners, operations teams, tenants/users, investors, community stakeholders, construction staff and architects/engineers, property and asset managers, building/planning/zoning officials, and anyone else involved in the project.

 The integrative process includes three phases:

1. Discovery and pre-design
   1. All the team members/organizations meet and coordinate to look for opportunities to create synergies that reduce cost and waste and increase efficiency/returns.
   2. The building owner, investors, and potential users share their objectives and requirements, and all team members work together toward the specified goals.
2. Schematic design and construction
   1. The project is planned and designed to meet identified objectives.
   2. The development is built accordingly, managing costs, time, and exposure.
3. Occupancy, operations, and performance feedback
   1. The asset is continually monitored for performance, and the parties involved in the operation of the asset collaborate to optimize efficiency and returns.

2. Advantages for CRE firms

We’ve alluded to the benefits, but let’s dig further. When everyone understands the underlying objective of a project, i.e., the owners’, investors’, users’, and asset managers’ intended outcome, accomplishing them is much more likely. 

For instance, if the owners’ and users’ goal is maximum efficiency to achieve optimal NOI — by reducing operating costs and maximizing appeal/rents — the teams involved will prioritize these points in designing, constructing, and managing the project. 

Likewise, if sustainability and occupant health/comfort are top of the list, teams will emphasize these components in planning and operations. The same follows for most goals throughout the project’s lifecycle, including exit, where teams may need to coordinate to secure the best outcome of a sale or other exit strategy.

One of the primary benefits is reducing risks, of which there are many in commercial real estate development and management ventures. As noted, the integrative process effectively manages cost and time constraints. With realistic expectations shared among all parties, and the teams working together to achieve them, the potential for project delays and budget overruns is significantly reduced.

Similarly, this process can mitigate legal and financial risks, including those tied to financing, debt management, onsite liability, and regulatory compliance. And perhaps of most significant value, the coordination and teamwork improve the investors’ and tenants’ experience, keeping the owners’/sponsors’ enterprise viable and on the path to new projects, capital inflows, and increasing returns.

3. How to apply it in your organization

Getting started with the integrative process is intuitive. Resources are available that describe the process in greater detail.

If you’re considering pursuing a green building certification for your project, it’s prudent to hire a LEED AP, an accredited professional trained in the integrative process as it applies to sustainable design, to oversee the project from cradle to grave (conception to exit/demolition).

Otherwise, for general business and efficiency/value-generation purposes, a skilled project manager on the asset management team can direct the relationships, communication, and collaboration among the various groups involved. Select a project manager that understands your asset class, has relevant education, and has demonstrated experience aligning and coordinating multidisciplinary stakeholders to achieve OKRs (objectives and key results).

Technology is tremendously valuable in facilitating the integrative process. Some of the most useful platforms include asset management software. Asset and data management platforms help operators and investors gather and analyze all the data required to monitor and optimize performance and facilitate data and insight sharing across the organization for collaborative decision-making.

Project management software is also crucial. When a project involves dozens or hundreds of personnel, and many different organizations/vendors, managing processes via email and spreadsheet is inefficient and impractical.

To achieve design and efficiency objectives, BIM (Building Information Modeling) is imperative in the design phase to help all the stakeholders visualize the finished product and model performance. And on the operations side, Facility Management (FM) software tracks usage, user behavior, maintenance, and operational expenses to support informed management decisions and optimization.

If your organization needs more support or doesn’t require a full-time person to oversee the process, there are consultant and advisory organizations, such as Thirty Capital and its branches, that have the on-the-ground experience as active CRE operators and investors to provide guidance throughout all phases of development and the project lifecycle.

Cohesive effort

When every party involved in the development and operation of a project is on the same page, the design and implementation process is much more cohesive, efficient, and less prone to risks and unexpected challenges. Work as a unified team and appoint someone with project management experience or consult with advisors to kick-start your initiative, oversee the process, and generate ideal experiences and outcomes and for stakeholders.

What’s coming up next? What’s over the horizon? 

How will it support or hinder the growth of your portfolio and enterprise?

Things in commercial real estate are changing extremely fast. Consequently, we have to stay on our toes to build and maintain a competitive advantage and manage risk. Operators and investors must know where things are heading and be proactive, so they’re in the right place and properly equipped to capture opportunities and skirt threats when they arise.

CRE data, technology, and analysis are the spyglass that allows you to see over the skyline and craft well-informed strategic plans. In this piece, we’ll look at what’s changing, types and sources of data, and tech tools to harness to stay a step ahead.

1. Facets of change in CRE

In the era in which we live, the operating landscape is shifting at a lightning pace. While we’re focused primarily on technology here, the change goes much further. I can’t think of an aspect of the operating environment that is static.

Each year and quarter, we see new developments in:

• Monetary policy.
• The cost of doing business (inflation, taxes, financing costs, etc.)
• Consumer (tenant/investor) behavior, preferences, and expectations.
• Environmental and financial regulation (compliance issues).
• Climate change (underwriting risk, insurance costs).
• Design and construction codes and best practices.
• Advancing technology and aggressive adoption by competitors.

It’s imperative we consider all these factors (and more) as we plan how we’ll acquire assets, create value, and exit prosperously.

As the world becomes interconnected, ways of doing business and the rules that apply to the game are evolving rapidly. Society is struggling to adapt and reach an equilibrium that’s a moving target.

To recognize, monitor, and account for changes in the operating environment and how they’ll impact us, conducting a SWOTT (strengths, weaknesses, opportunities, threats, and trends) analysis at least bi-annually is fruitful.

On the internal side, conducting a SWOTT helps you assess what you do best and where to improve. And equally important, it enables you to spot and maintain awareness of where and what external opportunities exist that will support your objectives — and what factors may be working against you.

To make these observations, generate quality insights, and implement best practices, we need data and the technology to aggregate and interpret it.

2. Types of CRE data and sources

Analyzing the operating environment can be a ponderous task. Fortunately, numerous organizations collect the data we need or offer technologies to assemble it ourselves and make sense of it.

But before we dig into the sources and tools, let’s look at the essential classes of data we need to be aware of in CRE:

• Economic data points: Interest rate trends, cost of capital, inflation rates, materials costs, demand factors, transactions, etc.
• Demographic, lifestyle, and psychographic (behavioral) data for tenants/users/investors.
• Property performance benchmarks (i.e., statistics regarding third-party asset performance, grouped by region, class, features, condition, etc.)
• Proposed, up-for-vote, and passed legislation pertaining to operations, finance, construction, environmental preservation, consumer protection, etc.
• Observed and likely impacts of environmental/climate change.
• Observations of new technologies entering or advancing in the CRE sphere, adoption rates, use by competitors, and typical impact on expenses and revenue.

Now, where can we find this intel?

• Economic/regulatory/social: Trade publications, academic journals, industry analyst firms, and market/industry reports.
• External benchmarks: Trade organizations such as NAA, IREM, and BOMA.
• Internal benchmarks: Collected from your assets, systems, and teams with data/asset management tech.
• Transactional: Brokers, data providers, listing sites, and tax assessors.
• Demographic: Government agencies, institutions of higher education, and private research firms.

With the data in hand, we’re one step closer to moving out front. But to take the lead, we need analytical support and the technologies to implement strategies that yoke the opportunities — and mitigate the challenges — we discover.

3. Analytical tools and implementation strategies

With so much data available across the many functional areas of business, we need tools specific to the nature of the job and the experience and skills of experts to extract actionable insights from the data.

Quantitative data on economic indicators and property performance can be quickly and cost-efficiently collected and centralized with data and asset management platforms. Rather than digging through spreadsheets or isolated property management software, you can implement a data management platform to connect each unit and system and automatically pull and assemble the internal data with minimal labor and expense.

Some platforms, such as Lobby CRE, take care of this continuously in the background, while also collecting and incorporating economic/market and benchmark data from a balanced variety of sources. In one look, you can see how your assets are performing compared to internal and external reference points.

Once the data is gathered, a team of analysts (in-house or advisory) supported by analytical tools can visually report the data to identify trends and data points to fill out our SWOTT analyses.

That leads us to the fun part: leveraging this actionable intel to select the best asset classes and geographic markets for our strengths and weaknesses — and present and projected opportunity and risk. We can further put the data and knowledge to work to structure ventures and deals appropriately, appeal to and optimally serve ideal tenants/investors, and develop contingency plans to leap threats or flip the script and transform them into opportunities.

Aside from data and asset management technologies, which should always be in place throughout the project and enterprise lifecycle, there are a variety of CRE tech tools we can use to carry out data-driven plans to create value for stakeholders and push us to and keep us on top:

• Technologies to improve how we serve tenants and investors, fostering loyalty, satisfaction, occupancy, growth, and capital flow:
  • Tenant/investor portals, digital communication, and automated and convenient visual reporting.
  • Building Information Modeling, Facilities Management, and Building Information Systems to forecast, monitor, and optimize expenses (save energy/water/resources, manage construction costs, and reduce waste).
  • Digital imaging and rendering tech (3D virtual walkthroughs, remote tours, and project/design conceptualization).
  • Automated and AI/machine learning technologies that create cost-efficiencies and returns we can pass on to stakeholders.
    • Automated valuation tools to facilitate due diligence and ensure we acquire feasible long-term opportunities.
    • Automated lease abstraction and rent roll preparation to ensure internal situational awareness.
    • Entity management to keep the machine running and ensure compliance.

With the rate at which new solutions are emerging for CRE operators and investors, there are plenty more data sources and technologies we haven’t discussed. Partner with experienced advisors in CRE tech, performance, and finance to streamline the learning curve and minimize the cost of implementing a data- and tech-driven growth strategy.

Capturing opportunity with CRE data

Reaching the top in commercial real estate is a function of having the right data, knowing what it’s telling you, and efficiently determining how to put it to work to meet your objectives.

Much like the necessity of a scholastic education (a form of data arranged into knowledge), we need a diverse set of data regarding our operating environment to recognize where opportunity exists and how to capture it. That insight, supported by industry- and asset-specific strategies and technologies, puts us on the expressway to a secure competitive advantage and a position of managed risk.

All other strategies and tools aside, an enterprise and the team that powers it is only as good as its leadership. Despite sufficient capital, the best people, and a well-thought-out strategic plan, a venture won’t get far unless its leader knows how to inspire and support followers.  

What is transformational leadership?  

Leadership strategies and styles that provide motivation and enable team members to grow, flourish, and attain professional and personal fulfillment. 

Let’s look at what commercial real estate executives can do to foster alignment with team members’ values, provide a clear vision and a workable path, and support professional development and satisfaction. 

1. Align with stakeholders’ values 

A leader’s first responsibility is to create an organization and company culture that speak to the needs and values of its stakeholders. And perhaps the most important constituents are employees and other team members.  

Today, people in general, and professionals in particular, look to collaborate with companies that share their beliefs and values. Team members want to know that what they’re working toward positively impacts society and the environment. 

Some of the highest-priority concerns include: 

• Social responsibility.  
• Support for the community, i.e., giving back.  
• Environmental sustainability. 
• Equitable working environments. 
• Spirit of service — emphasis on providing solutions. 
• Ethics/integrity. 

This list resembles the start of a values/ethics statement. If you haven’t previously thought this through, draft your organizational values and share throughout your operation and with external stakeholders. 

But don’t stop there — it’s more vital to embody your expressed values. Ensure the stated values and ethics are reflected in your behavior, the way you communicate, how you treat everyone, and the plans and projects you implement. 

 2. Inspire with vision 

Establishing and sharing your values is the first step toward creating inspiration. What’s needed next is a vision and mission that give form to how the organization will bring life to those values and communicate your high-level objectives. 

Preparing vision (to be) and mission (to do) statements is a helpful exercise. When formulating these, reflect on the following: 

• What role will your organization fill in the industry/world? 
• What do you want to become, and in what timeframe? 
• Why was your company created, what is it working toward, and how will it change lives? 
• What value will you generate for the community?

When assembling and developing your team — including employees, partners, investors, and vendors — push the boundaries of what they think is possible and encourage unmitigated creativity and innovative thinking.  

Demonstrate the venture’s viability, impact, and upside, and earn stakeholder buy-in by presenting detailed strategic plans and real-world data drawn from credible sources and backed by expert analysis. 

 3. Provide a workable path

To fulfill our vision and mission, our teams require a well-defined route to get there and a way to measure progress that keeps everyone engaged and morale high. 

Create a set of long-term objectives that are specific and quantifiable, along with achievable annual, quarterly, and monthly milestones.  

While big jumps in progress and growth sometimes happen, focus on consistent growth, even if very gradual, throughout each period. Over a year or several, small improvements accrue and bring us to our destination, often sooner than expected. 

Though ‘thinking big’ has its place in inspiring teams, realistic sub-goals and celebrated wins along the way build confidence and enthusiasm and help us see land on the horizon. 

Objectives and Key Results (OKRs) is a useful goal-setting and measurement model employed in commercial real estate with great success in providing structure and accountability — we leverage it at Thirty Capital across our brands.

4. Support and compensation

Our team members need professional and personal support to make it possible. It’s our job to help them reach the height of skill, creativity, collaboration, and job satisfaction — to ensure optimal productivity and elevate society and quality of life one person (and family) at a time. 

Further, the labor market is highly competitive, and just like our clients/tenants/users, employees and other stakeholders want practical value in return for pledging their time, lives, and resources to our cause. 

Here’s a quick list of tips to bring out the best and give the most value to our teams: 

• Listen attentively to everyone’s needs.  
• Provide professional tools and training. 
• Supply constructive feedback — and request it. 
• Solicit and incorporate fresh ideas and perspectives. 
• Create a specialized plan to enable each person according to their unique working style, personality, capability, and preferences. 
• Provide competitive compensation/returns and benefits. 
• Reward generously (and sometimes unexpectedly). 
• Give and share credit for successes freely — and take mutual responsibility for setbacks.

5. Represent the Future

We advocate for a better future through our values and vision, giving our employees and followers the sense they’re part of something forward-thinking.  

Team members also want to feel they’re doing something innovative, equipped with the most advanced technology, tools, and business models/practices — nobody wants to be outdated or limited. 

Internal and external team members find confidence in our strategic plans and leadership, knowing we’re harnessing every emerging advantage available as an organization.  

Facilitate transformation 

Leadership that helps each stakeholder evolve is our most crucial function as an executive — we’re here to facilitate transformation. Embrace the role and responsibility by aligning with team members’ values and expectations.  

Give them a vision that imbues purpose and a sense of working toward the greater good, personally and globally. Show them how we will get there, guide them along the way, and give them the support, tools, encouragement, and reward that keeps them inspired and invested. 

 

Coming off a long streak of rising valuations, cap rate compression, and historically low interest rates, commercial real estate stakeholders face a potentially deal-breaking disparity between the prices sellers are willing to accept and what buyers are willing to pay. 

In this article, we’ll look at what the bid-ask gap means, how current market conditions are widening it, and conventional and data-backed strategies to narrow the spread.

1. Bid-ask gap defined and market conditions

Before we get further into the discussion, let’s define the concept. The Bid-Ask Gap is the difference between what sellers and buyers will agree to as the sales price of the asset. In other words, the ‘ask’ is the lowest price the seller is willing to accept, and the ‘bid’ is the highest the buyer is willing to pay.

In economic terms, the ask is an indicator of supply, and the bid indicates demand. The average bid-ask spread in the market is also considered a measure of market liquidity. When there’s strong liquidity in the market, demand will increase as buyers have plenty of debt and equity to leverage for acquisitions. Asset classes with solid demand and low cap rates will typically have tighter spreads.

Inversely, the bid-ask gap increases when demand is low and the capital markets are bearish. This is particularly true going into 2023, as the market cools from its unprecedented run-up and sellers continue to reach for high prices. Meanwhile, buyers are wary of falling valuations and increasing financing costs.

While the FOMC cut rates during the pandemic to keep the economy going, investors were scooping up supply at exaggerated values to secure deals amid soaring competition. Those buyers were armed with ample liquidity and confidence in rising values and lease rates.

Many of those buyers and investors, including those who refinanced to higher LTVs, are now over-leveraged (negative leverage) and aren’t in a position to sell at the prevailing bid prices, thus widening the gap as demand subsides alongside buyer liquidity and confidence.

2. Closing the bid-ask gap — conventional strategies

What can parties on both sides of the transaction do to close the bid-ask gap?

The ideal approaches are those implemented in advance of marketing and negotiations.

For sellers, proactive strategies include making improvements, adding sought-after amenities, optimizing expenses, and maximizing occupancy. The intent of these measures is to reach peak NOI, reduce perceived risk, and stoke demand.

These initiatives may require additional capital, which could be too costly and/or unavailable under current conditions. Still, these repositioning strategies are worthwhile for owners with liquidity and will draw the highest possible bids.

Once at the listing stage (on- or off-market), it’s vital to market the property effectively. Polished and aggressive marketing stimulates latent demand by putting the property in front of the largest possible buyer audience and conveying the asset’s value and risk profile.

During the negotiation phase, it’s advisable to offer favorable terms and concessions where feasible. Enlisting the most capable brokerage, legal, escrow, advisory, and valuations professionals with proven negotiation, transactional, and regional valuation expertise is wise.

Sale-leasebacks are a popular approach for sellers when the gap widens. For sellers that occupy the property and don’t need to relocate, a sale-leaseback provides the opportunity to free up liquidity and maintain operations. The newly available capital can then be devoted to expanding and optimizing operations or held in reserve. This transaction structure also represents less risk for the buyer, who will have a guaranteed tenant with terms that offset economic risk.

Seller financing is another strategy for sellers to consider. Taking back a note on the asset allows sellers to command a premium price, particularly with rising interest rates and financing costs on the buy side. Seller financing also offers the seller tax deferral benefits on gains and passive income (principal and interest), with the potential to sell the note. The buyer benefits from this arrangement through reduced funding costs, bypassed LTV requirements, easier qualifying, and faster and less costly closings.

General strategies to get the best price as a buyer include bringing the most cash possible and focusing on raising equity to reduce financing costs and reliance on conventional lenders. Cash-heavy, quick-close offers have the best chance of acceptance with less-than-ask bids.

3. Narrowing the spread with data

In most cases, market and asset performance data that support your valuation and the assumptions it’s founded upon can sway the counterparty’s willingness to accept or move closer to your ask or bid.

Even where a qualified appraiser is involved, there’s still room for interpretation. Furthermore, the actual value is a moving target and is intrinsically tied to both parties’ value perceptions and risk/return expectations.

For sellers, performance, operational, and financial data regarding the property provides concrete evidence of expenses, occupancy, NOI, and other data points that will alleviate exposure concerns, validate the asking price, and demonstrate solvency and the upside. If the data doesn’t support the proposed ask, it can be leveraged to determine fair market value.

When internal data is paired with market data showing strong demand fundamentals, buyers develop more confidence and willingness to move closer to the asking price. Even when demand is on the decline, the data can clarify the trajectory and likely extent, allowing buyers to make informed decisions and fostering follow-through.

Buyers can also leverage market data to support their bid and assumptions, as well as see if the data justifies a higher offer based on potential rent growth and values in a future period after the market corrects.

Tools are available to facilitate the data collection, interpretation, and presentation processes. An automated data management platform is an essential resource that equips commercial real estate operators and investors with the insight to know where their assets, portfolios, and financials stand. With the data on hand, stakeholders can more quickly react to acquisition opportunities and bids and pivot rapidly to keep deals alive.  

 In addition to tech solutions, leverage your internal team and third-party advisors to assess the market, opportunity, and asset performance to ensure you’re not leaving anything on the table. 

Validation and confidence

While some transactions aren’t meant to be, there are plenty that can avoid the rocks and shoals by positioning assets, financing, and bids proactively with concrete data that supports value assertions and assumptions. Market and asset performance data provide evidence to validate valuations and instill the required confidence for both parties to move toward a successful close.

With cap rates rising and altering demand for office assets, it is critical owners and operators do everything possible to establish and maintain a competitive advantage.

There’s a fight to quality occurring where office tenants and investors are giving preferential treatment to Class A assets. Given favorable lease rates and plenty of available space and options, tenants opt for the best amenities, communication technologies, indoor air and environmental quality, and energy/water efficiency.

In this article, we’ll look at the state of the office market, how smart buildings generate greater value for all stakeholders, the four components of a smart office design, and how to implement the strategy for new and existing builds.

State of the office 

Office bore the brunt of the remote working trend spurred on by the pandemic. The U.S. National Bureau of Economic Research reported that remote working led to a long-run decline in office valuations of $453B, or just under 40%. During the height of the pandemic, some organizations stated working from home fostered an improvement in productivity.

However, a recent survey by Microsoft of 20K+ professionals found that 85% of leaders say the shift to hybrid work has made it “challenging to have confidence that employees are being productive.” 

Meanwhile, 73% of workers indicate they need a “better reason to go into the office than just company expectations.” It’s a controversial issue as many workers resist the return to the office and are fighting for the personal benefits of WFH (Work From Home).

Proponents of getting back to the office either full-time or partially include Tesla, Salesforce, Goldman Sachs, Netflix, Amazon, and many more. While there are viable technological and collaborative strategies to make remote work equally productive, the sentiment of many leaders is driving a return to the office. Employers cite the need for in-person collaboration and the onsite collective spirit that drives creativity and productivity.

As the health crisis becomes part of the operating environment, many public and private organizations are pushing for a return to the office. Consequently, demand is ticking up for office assets.

The value and components of smart office buildings

If employer attitudes to remote work are already changing and office leasing is improving, why bother making our office building ‘Smart?’

First and foremost, it’s about providing unique, differentiating value to the end user — the tenant paying the lease and driving revenue that fuels and justifies our operations. Here, we’re talking about employers looking at the bottom line in terms of the space’s conduciveness to collaboration, creativity, and productivity, as well as operational efficiency. 

Second, going smart appeals to ESG- and margin-conscious investors and checks boxes for associated criteria. A new survey by CBRE of 500 market stakeholders (investors) found that 53% of respondents favored deals incorporating smart technology. Likewise, 49% indicated the omission of smart features would have an adverse impact or be a deal breaker.

What makes a building ‘Smart?’

Deloitte defines smart buildings as “Digitally connected structures that combine optimized building and operational automation with intelligent space management to enhance the user experience, increase productivity, reduce costs, and mitigate physical and cybersecurity risks.”

Additionally, intelligent buildings achieve these four objectives:

• Uniting people in digitally connected spaces.
• Allowing occupants more control of building systems.
• Enhancing digital collaboration amongst in-office and remote workers.
• Facilitating the conservation of energy, water, space, and labor.

Current communications and building system technologies create value for tenants and investors, supporting a competitive advantage in a regional leasing and investment market. It gives businesses further justification and incentive to come back to the office and facilitates hybrid working models.

Specifically, tenants favor buildings equipped with fiber optic, modern teleconferencing equipment, and smart building systems to control doors, security, HVAC, and more.

Smart building systems also ensure thermal comfort by allowing tenants/users to tailor their climate zone to individual or group preferences. Additionally, energy isn’t wasted heating or cooling unoccupied areas. Light, movement, and hydrostatic sensors and monitoring systems further minimize consumption and provide optimal indoor environmental quality (IEQ).

And aside from the monetary considerations, providing tenants with a space that ideally suits their needs — based on their input and feedback — fosters tenant loyalty and lower turnover rates. Smart offerings make tenants feel valued and that you’re attentive to their needs.

Funding and planning smart features and improvements

Whether you’re working with an existing Class B/C asset to upgrade and reposition or building from the ground up, a smart design requires capital and planning.

With prevailing monetary policy and rising interest rates and cap rates, conventional financing at high LTVs and refinancing aren’t ideal options (as they would be under other conditions). The circumstances favor sponsors that can raise — initially or subsequently — the equity to fund the additional costs of smart and sustainable technologies. 

Institutional and accredited investors with dry powder (liquidity) are currently in the best position to implement or fund a smart building design or improvement strategy. The need for equity underscores the previously noted value/leverage that going smart provides in attracting investors mindful of ESG considerations.

A principal strategy to ensure results and control cost/time is the integrative design process — a central component of sustainable design methodologies.

It involves planning the implementation of smart building technology from the outset of the project and holding a design/re-design planning meeting with the owner/operator, investors, tenants, engineers, and all other parties involved in the process to gather input and feedback.

An integrative process ensures the requirements and preferences of the end user and owner are considered and that all design team members are coordinated. The result is that the project is more likely to be completed on time, within budget, marketable, and generate expected efficiency, market lease rates, and NOI.

Smart office buildings: A sustainable market position

A viable office investment and operating strategy is becoming contingent upon offering Class A assets with smart communications and building system technology.

As tenants and investors lean toward higher-quality, lower-risk, efficient assets, operators and sponsors answer the call by developing and repositioning assets to carve out a sustainable competitive advantage and market position.

Building a solid and intentional brand position involves many moving parts, but there’s one strategy you can apply in any situation — particularly when the alternatives aren’t feasible or practical.

Going the ‘Extra Mile’ is among the secrets (companion to the 1%/Kaizen rule) of extremely successful entrepreneurs in commercial real estate and broader.

Let’s look at what the principle entails, how it benefits operators, and simple strategies to go above and beyond in serving investors and tenants.

 1. The root of it

A little under a hundred years ago (1925), Napoleon Hill, a notable personal success and finance writer, distilled the concept of doing “more than what’s paid for” as one of his 17 principles in the Law of Success. He later developed the idea into the ‘Extra Mile’ principle, which he describes as the habit of providing “More and better service than one is expected to render and with a positive mental attitude.”

This notion may seem obvious, but it’s surprising how many professionals we encounter in our lives who are oblivious to this concept. I’m sure you’ve met at least a handful of people who only do what’s asked for and just enough to get by. When you think about those that have risen to success and wealth, the trait of going the extra mile is often apparent in their climb.

At its core, this principle is rooted in observations of nature. There are myriad examples in which life acts in multiples to ensure survival. Plants, fish, insects, reptiles, and birds reproduce in such numbers that regardless of the prevalence of predators, disease, and natural hazards, their continued existence is nearly assured (excepting for asteroid strikes and human interference). 

Many animals forage or hunt more than is necessary to get by and will do what it takes to find opportunity and resources. The commercial real estate business is no less demanding, and our work is quite literally how we survive, no matter how far removed from the plow, basket, or bow.

2. Practical benefits and manifestations

Going the extra mile precipitates many benefits for CRE operators. Hill developed the Extra Mile Formula to accompany the principle. Though not mathematically valid, it highlights the components of going the extra mile and their cumulative effect:

Q1 + Q2 + MA = C

Q1 represents the quality of service; Q2, the quantity of service; MA, mental attitude; and C, compensation. In other words, if we do the best work — more than what’s paid or asked for — and perform it in a spirit of positive service, we’ll have the highest growth and earning potential.

The formula makes perfect sense if we’ve been on the hiring or paying side of this equation. It applies equally to how we tip service workers as to how we compensate our executives and vendors.

What are the concrete manifestations of applying this principle as an operator/sponsor:

• Making a strong first impression.
• Creating rapport, trust, and goodwill.
• Fostering loyalty and buy-in among stakeholders.
• Building a competitive advantage.
• Establishing a superior track record.
• Generating leads with the best ROI: enthusiastic referrals.
• Improving performance and attainment of OKRs.
• Attracting and retaining tenants; optimal occupancy.
• Abundant capital and keeping investors on board.

The fact is going the extra mile doesn’t take that much more work. And when you put some passion into what you’re doing and see the positive response and appreciation from stakeholders, the business of CRE becomes a lot more fun — and rewarding.

3. What it looks like in practice

With the principle and benefits noted, how can we apply the concept in commercial real estate?

Start by always focusing on doing the best job for your existing investors and tenants. Of course, we must devote time and money to marketing and other business-generating activities. 

However, if we don’t keep our current stakeholders happy (i.e., generating at least the expected results), we won’t build loyalty, positive word-of-mouth, and the track record required to earn new business. Our foundation is the first group of investors and tenants that choose to take the risk in working with us when we’re getting started.

The next underlying component of going the extra mile is attentively listening to the needs and expectations of our stakeholders. We must possess a keen awareness of their desires, objectives, and values to produce the outcome and experience they’re seeking.

Let’s elaborate on what going the extra mile looks like in serving investors and tenants:

Investors

• Ask about their expected rate of return and risk tolerance and adjust/craft your offering accordingly.
• Under promise and over-deliver on returns. Be realistic and conservative with projections.
• Keep them in the loop. Provide frequent and detailed updates, reports, and financial statements backed by whole, accurate data.
• Implement a data management strategy and make investors aware of your commitment to leveraging technology.
• Utilize all the available tools to monitor, manage, and optimize expenses.
• Be transparent about your background, story, accomplishments, and values.

Tenants

• Regularly gather and encourage feedback from current and prospective tenants.
• Adapt your property, management style, space, and terms based on their desires, needs, and preferences.
• Provide more and better amenities and service than competing properties and operators.
• Offer a portal that allows tenants to communicate with each other, management, and staff.
• Show your appreciation for tenants by holding events/parties and giving unexpected perks.
• Be fair with rental rate increases. Do track market rates but keep hikes reasonable (2-3%), and only increase if the market justifies it.

Everything we got

We can do a lot to support the growth of our NOI and portfolio. Some of the common strategies, including marketing/solicitation, repositioning, expense optimization, and lease rate increases, are effective.

Yet, the simplest, most cost-effective, and human way to scale our commercial real estate businesses is by giving our investors and tenants everything we got and doing it with joy. 

Even if we’re not the highest-return or least expensive option in the market, stakeholders will partner and stick with us because we recognize, respect, and appreciate their needs and provide a fantastic experience.

What do you do best as a commercial real estate operator and investor? In other words, what sets you apart and gives you a competitive advantage — putting you ahead in the market?

When you can answer these questions, you’ll have identified your core competencies. I say that in plural because we all have more than one strength, and a solid competitive advantage is often a combination of abilities.

Building a competitive advantage in CRE is contingent on knowing what our strengths are, focusing and developing them to give us the edge, and then relating that to our prospects and community through our value proposition and brand positioning.

Here, we’ll consider how to identify what differentiates you and put it to work to build your competitive advantage and brand.

1. Identify what you do best

We may feel we know, and probably have a good idea, what areas in business we’re good at. Our customers, partners, and other stakeholders will often sing our praises, and throughout our careers and enterprising-building efforts, we’ve discovered where we shine. 

Yet, developing a robust value proposition/advantage and effectively articulating it requires digging deep to reveal all our core competencies. And just identifying them isn’t adequate — it takes quantitative and qualitative data to give us usable insights that will point us to where we need to focus and improve to create pitch materials that provide concrete evidence of our abilities.

Some of the common competencies in CRE include:

• Strong negotiation skills.
• Running assets and portfolios lean.
• Capably and consistently attracting tenants (marketing).
• Understanding tenant and investor needs/desires/preferences.
• Deal analysis; determining feasibility.
• Reliably raising substantial capital.

What’s notable among these strengths is they all result directly or indirectly in strong/growing NOI and stakeholder satisfaction. However, knowing that margins are strong isn’t a compelling enough insight to create a good argument for investors and other parties to get involved with your venture or assets.

They want to know more. To understand what underlying strengths drive that performance (i.e., quantify and objectively characterize them), we need a body of data. Fortunately, the data is there, and when we have it organized and centralized, we can reference and analyze it to spot where in our operations we’re excelling (and where we need to optimize). 

For instance, if we have a robust data management system and policies, we can quickly run reports to determine our most significant cost efficiencies, such as what properties are doing the best and what factors drive the strong performance — lease rates at market, low PM costs and Capex, minimal tenant turnover, etc.

From these quantitative insights, we may see that some of our core competencies are running lean and keeping tenants interested and satisfied. And with data to back up our claims, we can make a justified pitch to investors.

2. Develop your competitive advantage

There are many competent operators and sponsors in any market, so gaining an edge and winning capital and tenants takes everything we can muster. Knowing our core competencies is important, but bolstering, refining, and synergizing them is even more crucial to create an unbeatable competitive advantage in your market.

Where you find strengths, work to bring out the best in your teams, acquire the resources and talent to take them further, and refine your processes. Also, look for opportunities in related areas of operations that, if optimized and strengthened, would create so much value that it would be difficult for stakeholders to dismiss as commonplace.

For example, consider these strengths that, if taken to their peak and paired with other competencies, will focus and differentiate our value props:

• Sourcing value-add opportunities + 
  • Identifying markets with stable demand factors.
• Providing design and amenities that tenants actively seek +
  • Offering property/tenant management systems and a company culture that keeps tenants satisfied and feeling valued.
• Maintaining lean property management expenses +
  • Designing/developing/redeveloping for efficiency and minimal environmental impact.
• Recruiting and retaining the best talent in each functional area +
  • Developing a workplace open to and uniquely supportive of all team members.
• Leveraging available technological resources +
  • Capturing, centralizing, and analyzing data to support high-quality strategic decision-making.

3. Position your brand to harness the advantage

Now, you know where you’re the leader, have formulated a winning competitive advantage, and have the data to back it up — is that enough?

If you’re relying solely on your network or local community to raise capital and find tenants, and only share your offerings with those groups, you might be good to go (for the short term).

But as you scale and take on more acquisitions, capital and tenant requirements will rise significantly. As you grow, what you can draw from the network you’ve built organically (and the local tenant base aware of your property and development activity) won’t be sufficient.

You’ll be pushed to reach further — with your brand as your emissary. Purposely expressing in your marketing what you do best, who you do it for, and why stakeholders should buy into your organization and properties is essential in garnering attention, building credibility, and obtaining commitments from people and organizations you don’t have preexisting relationships with.

Besides, those who are part of your network will appreciate and respect the thoughtful and well-supported expression of what differentiates you, earning their continued faith and loyalty.

Opening new markets

Knowing where we excel, doing what it takes to go further, backing up those strengths with data, and expressing those competencies, puts your commercial real estate enterprise in a position to attract the capital, tenants, and talent it takes to build an economically and strategically sustainable venture. 

Effectively relating the value you can uniquely generate for your current and potential stakeholders is the zest that builds credibility in your industry and community, fosters long-term business relationships, and opens new markets.

The only way to know if you’re operating at the peak is by comparing the performance of your commercial real estate properties and enterprise to comparable assets in your market. 

While conventional wisdom on a personal level is that we shouldn’t compare ourselves to others, in business and CRE, benchmarking is essential in reaching the top of the bottom line. Whether in a geographic- or a niche-based context, CRE benchmarking is a crucial decision-powering tool that provides insights that guide us toward optimal efficiency and performance. 

In this article, we’ll talk about the value of CRE benchmarking and how it can help you take your properties and enterprise to the next rung of growth and NOI.

1. Why CRE benchmarking?

How is your company performing relative to similar firms in your industry and niche?

It’s an important question to ask so we can get a better understanding of our operational potential and weaknesses. We may be either falsely satisfied with or overly critical of our performance without examining how competitors and peers perform in the same asset class and market. 

To address this business need, benchmarking as a concept was developed nearly 100 years ago and was notably implemented by Xerox in the 1970s to compare its production costs to Japanese competitors.

Leveraging the insights it harvested from the data, Xerox won an American award in 1989 for quality while also reducing expenses. Benchmarking subsequently became popular in the corporate world in the 1990s.

For clarity, benchmarking is the process of comparing the quantitative or qualitative performance of one of our assets or businesses against that of others we own or those operated by third parties. 

To make the comparison, we gather data on the various metrics used to measure the performance of properties and ventures. We assemble this data for our subject asset as well as that for external assets. With this information, we can identify where we need to improve and optimize — and where our core competencies and competitive advantage prevail. 

2. Collecting and analyzing the data

We can aggregate the data we need for CRE benchmarking in a variety of ways, including internal/primary research, private firms that conduct benchmarking, and industry organizations that draw operating data from their members.

To start the benchmarking process on the internal side, we need a way to collect, store, and analyze the data. We can do this manually and hire a team to conduct and oversee the process; however, this can be highly time-consuming and costly. Alternatively, we can leverage data management systems specific to our industry that handle these processes continuously in the background.

Getting set up for the first time can take a bit of work, but once implemented, a data management system keeps the knowledge at hand and ready for application in the benchmarking and other decision-making processes.

3. Internal benchmarking

If you own a set of assets of the same type, whether commercial real estate properties, businesses, portfolios, or operating departments and teams, you can compare their performance.

With the operating information centralized and organized in data management software, you or your team of analysts can spot the most significant variations in performance and start to investigate the causes.

In the framework of CRE assets and operating companies, a few of the typical metrics to contrast include:

Income: 

• Net operating income (NOI).
• Net effective rent.
• Gross rents.
• Loss/gain to lease. 
• Rent adjustments. 
• Gross potential rent. 
• Ancillary revenue. 

Expenses:

• Repairs and maintenance. 
• Leasing expenses. 
• Operating expenses. 
• Taxes and insurance. 
• Management fees.
• Utility costs.

Operations:

• Vacancy/occupancy rates.
• Tenant turnover rates.

Looking at these data points across our assets and departments/subsidiaries, we can see trends and opportunities and form actionable insights regarding how to operate more efficiently and enhance our valuations and NOI.

We may realize that one or a group of our assets aren’t performing as well as another due to factors we can easily remedy. Or we might decide that one market holds greater potential than another and start to reallocate our capital toward building our portfolio there. 

Whatever the case, we’ll be moving forward informed and purposely, armed with concrete data to support our actions and make our case to investors.

4. External benchmarks

Once we have our internal performance data together and analyzed, we’re ready to compare our properties and enterprises to third parties. External benchmarking allows us to observe and gauge against how other operators across geographic areas and business models perform. 

The broad data provides objectivity and sufficient sample size to draw tempered conclusions regarding our performance and what potential exists to optimize our assets.

External benchmarks can also help us identify markets ideal for future investment and know what to expect based on a robust, real-world data set. In addition to opportunity, we can also see where the most significant risks are based on vacancy, late rents, and eviction rates in other metros.

CRE Benchmarking: scale with precision

Leveraging available internal and external resources and technologies, we can efficiently gather data, enhance our awareness, and make informed moves that enable us to scale with precision and managed risk. Growth-minded operators and investors incorporate benchmarking as an integral component of their operating and decision-making processes.