Some new investors look at the stock market and tend to assume that everything, from GDP to commercial real estate values, track closely with its overall performance. 

That is, if the stock market is up, then commercial real estate is up. Likewise, a bearish stock market should also correlate with a downturn in fortune in commercial real estate. 

Investors naturally use stock market performance as a blanket metric for a particular sector because the status of the equity market indicates the aggregate business mood of all investors. 

Though, depending on several factors, their collective sentiments could alternate between confidence and doubt at any given moment. This sudden shift in their investment outlooks is at the heart of market volatility.

In this article, we’ll show you how to bulletproof your portfolio against volatile markets and why the risk factors for real estate are completely different from those for stock market and bond investing.

The Risk Factors for CRE, Stocks, and Bonds

Volatile markets are especially dangerous if you make poor decisions as a result of them.

Some often seen examples of uninformed investment decision-making include liquidating all assets even though the fundamentals are still sound, funding investments with too much leverage in an effort to time the market, and hoarding an unsustainable amount of alternative investments as a contingency.

Though risk is a natural part of a boom-and-bust cycle, the factors that drive the stock market down don’t always affect commercial real estate.

In research published in the Pension Real Estate Association magazine, Greg MacKinnon analyzes how six common risk factors, including GDP growth and change in bond spreads, have different correlations with various asset classes. MacKinnon writes, “How much of the real estate market is driven by the stock and bond markets?“

Not much. 

Using quarterly returns from Q2 1984 to Q2 2018, MacKinnon shows that only 2.3% of the variation of real estate returns is associated with the fluctuation in bond market returns — and only a minuscule slice (less than 0.5%) is associated with the variance in the stock market.

What does this mean for you as a commercial real estate investor? 

Securities have very little correlation to the commercial real estate industry, despite the widespread conviction that the two are intrinsically linked.

Diversify Your CRE Holdings with REIT ETFs

Diversification is a strong motive for many investors getting into commercial real estate in the first place. If you’ve allocated your funds across multiple industries, your CRE portfolio might already be more “bulletproof” than you think.

A myriad of uncontrollable factors can put a real estate project in the red: shifting migration patterns resulting in decreased demand, natural disasters destroying businesses and homes, and more. 

Picking successful individual commercial real estate projects is sometimes just as difficult as picking successful individual stocks.

One way to overcome the volatile markets is REIT ETFs — i.e., investing in a fund that purchases real estate across many markets and areas. As an example, Vanguard’s REIT ETF has averaged roughly 9% since inception (and a whopping 34% YTD). 

Essentially, REIT ETFs allow you to hold on to a lot of different real estate assets without having to take on as much risk as buying a single property. In other words, you’re spreading your capital and risk across a variety of assets in different markets and geographic areas.

Even with this investment vehicle, you’re still exposed to the real estate market, but your investment is easily liquidated in the event that you find a project you want to pursue.

Invest in What You Know and Take a Long View

If you know your market, if you collaborate with partners you trust, and if the fundamentals of your investment are sound, you will very likely make money in even the most volatile markets.

And if you take a long-term view on the market — i.e., you don’t drop your assets in a recession — you’ll rarely lose money in CRE. Invest in assets that you understand and pay attention to the direction of the market to select assets and strategies that fit.

Then, when the market is pulling back, avoid short-term buying and flipping approaches and hold on to your CRE portfolio till the weather clears. CRE, like residential, consistently appreciates over the course of decades and, in the long-term, compensates for even severe market swings.

If your returns are falling and it really is the time to exit but you’re facing prepayment penalties on your conventional debt, consider defeasance as a strategy to replace the underlying collateral and stabilize your portfolio with Treasury bonds and other securities.

Hone Your Insight to Hedge Against Volatile Markets

The risk factors for stocks, bonds, and real estate do not precisely track with each other. And research demonstrates that the stock market is not an indicator of the commercial real estate industry’s performance. 

To keep your CRE portfolio humming throughout your investment lifecycle, hone your marketing insight, diversify your portfolio, and look past the horizon in planning your exit strategy.

Occasional remote work was part of the routine for many workers long before March 2020. However, the pandemic ensured that stay-at-home policies turned Zoom conferences and telecommuting into the norm.

Although the COVID-19 infection rate shows signs of slowing, many employees are not back to working on-site full-time — and have no intention of doing so just yet.

This unconventional work trend has deeply shaken commercial real estate, particularly large office buildings, which are now under-occupied. 

The high vacancy rate is not necessarily bad news, as it gives investors the chance to provide workplaces more suited to the current needs of both workers and companies.

Remote work is here to stay

Telecommuting was already popular with many organizations and their personnel long before the coronavirus pandemic.

According to a Regus study from 2017, 54% of employees worldwide were already spending half of the week working somewhere other than their company’s primary location — be it from home, a satellite location, or a client’s office. This transition to remote work developed organically and became a practical evolution of working.

Now, high-speed internet and advances in technology make it easier than ever to work remotely. For instance, the number of planning tools (including Trello or Slack), online meeting apps (such as Zoom), and file-sharing services (Google Drive, Dropbox, to name a few) have exploded in the past year. 

Teams can now communicate and manage projects seamlessly no matter their location. Besides, Millennial and Generation Z workers continue to demand a better work-life balance, so rigid work schedules are a major red flag for these younger groups. 

In recent Limeade research, 71% of respondents indicated they are anxious about returning to their workplaces because they fear losing the flexibility that came with the hybrid or work-from-home model they adopted during the pandemic.

Also, in the wake of the pandemic, workers have moved from metropolises such as New York, Chicago, San Francisco, and Los Angeles to mid-sized cities and suburbs with more space and lower real estate prices. 

But their relocation is not entirely voluntary. As their presence in the office is not required every day, they also need access to a dedicated — but more importantly — affordable home office space outside the pricey urban center.

These lifestyle and demographic changes have serious consequences for commercial real estate.

Some commercial real estate assets may become obsolete

Large single-occupant office buildings, where each worker had access to their assigned cubicle, were once a sign of prestige. But companies’ recent decision to adopt the hybrid model — i.e., employees working from home part-time — has dramatically reduced the occupancy levels of these properties and left large office spaces underutilized. 

As a result of the diminished need and demand for space, corporate tenants are calling for more flexibility and concessions from landlords to make these workspaces viable. 

Instead of identical cubicles, today’s office workers need access to informal collaborative spaces and private areas where they can focus on the task at hand without interruption.

Business owners seek these accommodations from landlords because the statistics generated during the pandemic demonstrate that there is still a need for conventional offices. 

While most workers would prefer to work from home at least two days a week, over 20% don’t see themselves working remotely. Further, 27% of remote workers reported that they regretted not being able to unplug at the end of the workday. 

Teamwork and collaboration also suffered from workers’ isolation and lack of in-person interactions, with 16% of respondents reporting these issues as their biggest struggle with working from home. 

Simply put, the office isn’t going away. And as the unemployment rate falls, office demand will rise.

New opportunities for investors

Commercial real estate must adapt to new lifestyle trends to thrive. Accordingly, we need to develop an offering that satisfies the needs of corporations and employees alike. Although traditional single-occupancy office building owners are facing challenges, the remote working trend offers new opportunities. 

Investors should consider diversifying their portfolios to include smaller offices in locations closer to where employees live. 

Corporations also need shorter leases that provide more flexibility. Unlike multi-year commitments, shorter terms (monthly, weekly, or even hourly) allow established companies, along with freelancers and startups, to share the same building and maximize its occupancy.

There is similarly a lucrative opening in coworking spaces — many home-fatigued remote workers are looking for alternatives. Additionally, remote work–friendly features are in growing demand in new condos and apartment communities.

Given these latest real estate dynamics, investors should consider converting existing assets to creative uses to attract new tenants. In some areas, empty offices may be replaced by mixed-use buildings featuring housing and coworking spaces. 

Elsewhere, new opportunities are taking more dramatic forms, such as repurposing large spaces for last-mile industrial uses to feed the immense demand for online retail distribution.

The office will live 

For many organizations, the pandemic triggered a prompt switch to a remote or hybrid model. Yet, work-from-home isn’t killing commercial real estate.

The immediate deployment of digital technologies kept businesses going. And now that the tools of quality telecommuting have been acquired, it’s time to look forward. Commercial real estate needs to adapt to take advantage of the opportunities this out-of-desk work approach provides. 

On March 16, 2020, millions of businesses in the U.S. faced two chilling realities: 

They had to shut down operations, close their doors, and turn away customers to slow the spread of COVID-19. And they learned their business interruption insurance wouldn’t cover ANY of the financial losses from suspending activities. 

How was it possible to have insurance for this seemingly exact situation yet receive no coverage? What could’ve been done differently to ensure protection? 

These are just two of many questions commercial real estate owners and operators have asked themselves over the past year and a half. 

In this article, we’ll cover how insurers let commercial real estate operators down and share strategies owners can use to protect themselves from future refusal of insurance claims. 

What is business interruption insurance?

Business interruption insurance, also called business income coverage (BI), is a type of insurance coverage specifically designed to shield a business against financial loss in the aftermath of a peril, such as a tornado, tsunami, theft, or fire. 

It protects a business from financial ruin by covering underlying operating expenses like rent, payroll, taxes, and lease payments. 

The anticipated compensation makes this policy ubiquitous among small- and medium-sized companies in all sectors.

As expected, business income coverage is also popular in U.S. commercial real estate, where nearly 90% of businesses lease — rather than own — their space. 

This occupancy trend is the reason commercial real estate landlords, like their commercial tenants, also suffered economic consequences (ranging from mild to catastrophic) during the government-mandated shutdowns. 

Why viruses are not covered 

Surprisingly, the insurance industry’s move to quietly dump insurance for virus-related peril started decades ago. When SARS broke out back in 2002-2003, nearly halting the Asian economy, insurers had to pay out millions of dollars in BI coverage settlements to their customers. Lesson learned!

Evolving from this massive hit to their bottom line, providers subsequently added to most insurance policies a blanket clause that excludes coverage for damage or losses due to viral or bacterial diseases. 

This calculated elimination meant that by the time COVID-19 was first confirmed on American soil, almost half of all insurance policies would exclude payments to businesses for pandemic-provoked economic losses. 

And thus a severe gap between the reality of COVID-19 and the limits of insurance emerged. 

In the fine print: why businesses flopped in courtrooms

Seeing their BI coverage claims being continually denied, owners across the country dragged their insurers to court, with over 1,500 lawsuits filed between lockdown and resumption of activities. 

Unfortunately for the aggrieved, verdicts for two-thirds of these cases were in favor of insurance companies. Owners couldn’t refute the virus-exclusion clause in their policies and the basic, almost unequivocal, language that required any damage to be physical for businesses to qualify for compensation. 

Judges at all levels seemed to agree that unlike fire, hailstorm, or a riot, COVID-19 failed to meet the ‘physical damage’ standard, as it is undetectable to the human eye. 

The key to winning

Thankfully, a few businesses were successful in their suits against the insurers. The victories of these victims offer case studies for commercial real estate to close the gaps in business income coverage. 

Rather than evade the physical damage requirement under the BI coverage, attorneys of the prevailing lawsuits proved convincingly — via a preponderance of evidence — the presence of COVID-19 on a business’s premises. 

These savvy counsels submitted results of testing of surfaces, air ventilation systems, and employees, which confirmed the deposit of this coronavirus variant. Their arguments were plausible, as proven by science. 

Because COVID-19 spread so easily, it would — in more instances than not — be detectable on-site, thus qualifying a business for a payout. Additionally, a handful of commercial landlords invoked the contamination clauses in their business policies. 

They categorized COVID-19 as a ‘pollutant’ capable of shutting a business down and swayed judges to recognize the virus as such. Their ‘pollutant persuasion’ allowed them to introduce a peril that was otherwise exempted from the policy. 

It’s also important to note that these lawsuits only prevailed because none of the insurance policies held virus-exclusion clauses. Nevertheless, these successes provide valuable insights that commercial real estate operators can apply to avert a similar ‘no-claim’ crisis in the future. 

For the future, odds are on divergent thinking 

Given the rarity of pandemics, one isn’t likely to strike anytime soon. But there will come a time when the limitations of business interruption insurance coverage will again become a contentious issue. 

Because despite the outcry over the ineffectiveness of business interruption insurance coverage in a pandemic, the fundamental insurance policies largely remain the same. And insurance providers appear keen to retain the current structure indefinitely. 

This refusal of insurers to accommodate a peril that is otherwise exempted from the policy means the ideal strategy to recover lost business income is to establish the underlying cause as physical.

Therefore, only through a more inventive, open-minded approach will commercial real estate owners and operators successfully protect their revenue.

While hypergrowth may seem like a nice situation for any business, managing it isn’t easy. 

The slightest misstep or hesitation in decision-making can mean a missed opportunity or strategic failure. 

What are we trying to say with the term ‘hypergrowth?’

A ‘hypergrowth startup’ is a new business that undergoes double-digit growth within a short period after launch. 

Companies at this stage welcome a surplus of new customers and, in turn, face a flood of production, sales, and unforeseen challenges. 

The CRE sector has witnessed its fair share of operators with just one property who went from managing a few units to overseeing thousands of doors in a surprisingly short time frame. 

But many have also collapsed under the weight of sudden acceleration. 

In this article, we examine the top five lessons that commercial real estate owners can draw from hypergrowth startups.

Move fast 

Hypergrowth companies move fast. 

They have few employees, no organizational silos, and little bureaucratic obstacles. 

A company with this setup is dynamic and can make strategic decisions with ease. 

Startups that move quickly respond to emerging crises and seize new opportunities while the windows are open. 

Commercial real estate firms can adopt a similar fast-paced approach by reducing paperwork requirements, decentralizing organizational hierarchies, and avoiding decision paralysis when evaluating opportunities. 

In doing so, real estate owners launching their operations can better position themselves to dodge transactional pitfalls, contract with the right partners, and secure the best deals. 

Stick to one goal

Hypergrowth startups tend not to focus on multiple, unrelated business objectives at the same time. 

Instead, they prioritize just one central goal that yields the best odds of survival at this stage of expansion. 

When employees and stakeholders aren’t clear on operational priorities, internal confusion and wheel spinning ensue. 

In contrast, a startup focusing on just one short-term goal, such as ‘onboarding new customers,’ will align its staffs’ activities and minimize internal discord. 

Commercial real estate firms can also set and single-mindedly commit to an immediate objective by picking one bench mark — like ‘assets under management’ or ‘monthly cash flow’ — and insisting everyone work toward its execution before progressing to the next milestone. 

Temper innovation 

Tech entrepreneurs know that innovation is a lengthy process that consumes immense amounts of money, energy, and personal resources. 

They also understand that developing cutting-edge tools is secondary to addressing present-day demands. 

In CRE, that often means prioritizing raising capital and building a lean operation that will get the venture to positive cash flow by the most efficient path.

Prioritizing practicality is why some startups avoid — or passively pursue — product and brand innovation during a whirlwind growth cycle (unless you’re in tech). 

Indeed, innovation is crucial to your long-term success. 

But starting out, you’ll need to balance technological advantage with the practical demands of generating sufficient short-term revenue.

Get organized 

There are plenty of success stories of startups adapting to the challenges of hypergrowth. 

Still, all of them could only manage that sudden, aggressive growth because they stayed organized. 

Early on in the execution of their strategies, successful company founders emphasize standardizing business operations throughout their growth phase.

This allows them to maximize opportunities, improve delivery time, and build a loyal following of clients and investors.

Likewise, in commercial real estate, the intentional organizers gain the edge. 

Disorganization in this dynamic market has devastating effects, such as lost deals, unexpected operating costs, and money left on the negotiation table. 

Commercial real estate owners can stay organized when scaling by incorporating the right technologies and internal systems to track paperwork, automate processes, and monitor properties. 

Teamwork is key 

Hypergrowth startups can’t accommodate internal disconnects. 

Rather, startup culture is centered on transparency, integrity, and communication. 

Smart founders promote cooperation among employees and focus on designing open and unifying organizational cultures and workspaces that facilitate collaboration.

The intent is to eliminate unhealthy internal competition, stress, and productivity blocks, which can derail a company’s momentum. 

In commercial real estate, harmony among all internal and external stakeholders is vital — anecdotes of once successful CRE enterprises left in shambles due to internal feuding and stubborn leaders are common.

Observe startups and build your playbook

Commercial real estate owners and operators can learn a lot from hypergrowth startups.  

Entrepreneurs successfully manage growth as a startup by moving fast toward one goal without being distracted by internal strife, unnecessary R&D, and disorganization. 

These powerful hypergrowth strategies provide commercial real estate firms the best playbook to prepare their operations for fast growth. 

Investment decisions can make or break your success. Elon Musk invested early in some of the most successful and innovative companies of the last 25 years: PayPal Holdings Inc., SpaceX, DeepMind, Tesla Inc., and The Boring Company, just to name a few. 

The diversity and profitability of his roster demonstrates that his investment decision-making process can be applied to a range of industries, including commercial real estate.

If you’re wondering how to invest in commercial real estate to maximize your ROI, it’s time to ask yourself: What would Elon Musk do?

Here’s a look at some of the strategies he’s used when making wildly successful investment decisions.

 

Diversify

One thing stands out about Elon Musk’s investment decisions when you run through them one by one: The companies are vastly different from one another.

Consider the companies mentioned in the intro and you’ll see a payment processing platform, electric vehicle manufacturer, and a commercial space explorer. 

The entrepreneur invested in these companies after achieving his first success with an online phone book called Zip2.

There’s no pattern to the types of companies he’s chosen to invest in. 

Rather, he’s continually diversified — a traditional but essential strategy to reduce risk.

Commercial real estate investors often adopt the same approach. 

We diversify by balancing investments in single-family properties, multifamily, office buildings, and other types of real estate. 

A high level of diversification insulates your business from risk and supports long-term growth.

Consider the Public Good

Investors buy and sell commercial real estate to make a healthy profit. 

But it’s even more admirable when they consider the public good in their dealings.

Musk always prioritizes investing in companies that promote the public good. 

For example, his AI company’s mission is to ensure that all of humanity benefits from artificial intelligence — not just a privileged few.

Musk lives by this commercial-plus-altruistic principle.

When Puerto Rico suffered a devastating storm, Hurricane Maria, he took a voluntary stake in rebuilding the territory’s power grid.

Yes, profit is the bottom line in commercial real estate. 

But, as Musk’s career demonstrates, financial gain and public good can coexist under the same corporate umbrella. 

Weather the Storm

Looking back at his track record, we see many of Musk’s investment decisions look like strokes of genius. 

But that wasn’t the case when his ventures were fresh and the companies were still journeying toward success.

PayPal, as ubiquitous and successful as it is today, was voted the worst business idea of 1999.

Tesla and SpaceX have also received heavy criticism at times, even though they’re generally considered successful companies now.

No commercial real estate professional wants to stick with a bad choice. 

However, when you’re confident in the long-term viability of an investment that isn’t going well at the moment, make sure you persist through the criticisms and downturns. 

 

Get Your Hands Dirty

Elon Musk is notoriously hands-on with his investments. 

He’s never been one to kick his feet up in the corner office and delegate to those beneath him. 

Instead, he gets involved in day-to-day operations to push his companies toward success.

When Musk first launched SpaceX, he cold-called rocket scientists to learn more about the industry. 

Today, that commitment to learning and understanding operations has helped him create a company worth billions.

As a commercial real estate investor, stay as close to the business as you can. 

You’ll gain a competitive advantage and make informed moves when you’re intimate with the markets you invest in.

Commit to Excellence

Elon Musk always ensures that “things are great” at his companies. 

This dedication to excellence drives the success of his investments.

Musk even uses a specific tactic to practice excellence on a daily basis. 

He focuses on what he calls “first principles” and boiling things down to their fundamental truths. 

As a commercial real estate investor, you’re operating in a competitive market. 

Indeed, finding a strategic advantage based on principle is the difference between a strong portfolio and one with lackluster performance. 

 

Skyrocket Like SpaceX

Musk is undoubtedly one of the most successful investors and entrepreneurs of his generation. 

There’s much that commercial real estate investors can learn from his career, motivation, and approach.

Your investment decisions are only limited by your willingness to look beyond the industry for lessons from leading entrepreneurs to apply to your commercial real estate vision.

Psychology explores the effects of biological influences, social issues, and environmental factors on human thoughts, actions, and emotions.

Successful players in the commercial real estate sector embrace psychological insights to support their relationships with all stakeholders — investors, personnel, and the public.

Despite the upsides of incorporating psychology in the efficiency- and metrics-driven industry of commercial real estate, many operators still neither realize nor harness the psychological element of the business. 

But recognizing and respecting consumer behavior is crucial to creating a brand that’s ready to lead and serve.

To leverage psychology to grow your brand, consider these four fundamental strategies:

 

1. Align with the values and ethics of your stakeholders

Productive long-term business associations are relational, not transactional.

In other words, every founder has the capacity to forge lasting bonds when they cultivate synergistic relationships with stakeholders based on aligned values — rather than finance.

The word ‘Stakeholder’ appears in almost every CRE monthly newsletter, weekly op-ed, and quarterly business review. 

But what do we mean by that?

Your stakeholders are everyone who is personally, professionally, or financially invested in the success of your venture — which includes the community.

So, how does someone become your stakeholder, and why would they want to?

For the why,, it’s because they believe in what you’re doing and who you are.

As for the how, a critical thinker will only choose to invest in you, financially or emotionally, if your values and ethics match theirs.

Get to know what’s important to your various groups of stakeholders, and build your offering and brand around them.

The road to merging their beliefs with your brand begins with  goodwill. 

Let the public and your potential stakeholders know that you’re motivated by the greater good — most everyone would say they are — and then back it up by dealing fairly, delivering on your promises, and operating according to the ESG principles.

 

2. Frame your brand with benefits and consistency

Your brand is among your most valuable assets, with two of its major components being visual image and perception.

Consequently, it’s vital to consciously shape that awareness and interpretation of your company to fit the needs of your stakeholders.

Starting with market research — which some would argue shares threads with psychology — we can identify the needs, both physical and emotional, that drive our target market’s beliefs and actions. 

Thanks to your discovery, you can speak directly to their preferences through your marketing messages, visual campaign designs, and communication channels.

To build trust and maintain credibility, stay consistent in the visual and written voice of your brand, the benefits you offer, and what you stand for.

 

3. Build confidence and trust by demonstrating transparency, knowledge, and experience

Trust is, in itself, a social behavior and psychological concept. 

Still, it must be earned.

How do we earn trust?

By doing what we say we’ll do.

At its heart, trust is about a basic physical and emotional need: safety. 

For investors, ‘safety’ means their money, time, and reputation are protected by your willingness to openly share information and your possession of the knowledge, tools, and experience to deliver returns and manage exposure.

You can further foster trust by providing insights and solutions to your target market’s key questions and concerns. 

Position yourself and your firm as a thought leader and build familiarity by holding seminars, producing white papers and case studies, and sharing your knowledge through your blog, contributor articles, and media interviews. 

 

4. Be the firm your peers and clients want to be associated with

Lenders, tenants, employees, and peers want to work with a successful firm: i.e., a market leader and innovator. 

Capitalize on the innate desire to work with the ‘#1’ by leveraging your success stories in your marketing and honestly projecting the core competencies that drive your value proposition.

Keep it real, but don’t understate why you’re the most qualified and how you’re leading by example and results. 

As you’ve seen me advocate in other articles, tech adoption and utilization set the best apart.

Our society values tech not only for its novelty but also for the powers it grants the organizations that wield it wisely.

Appeal to that need for physical and emotional ‘safety’ by showing you have the technology to seize any opportunity and adapt to all economic, social, environmental, and regulatory conditions.

Stay ahead of the curve, and you’ll stand out as a nimble leader of an organization capable of stable growth and returns.

 

Relating Authentically 

Developing and implementing strategies based on these psychological factors aren’t sly tactics we utilize to gain an upper hand.

Rather, the study involved in that planning and execution is how we learn to authentically relate what makes us the best fit for those we partner with.

Understanding how our stakeholders think and feel is fundamental to our finding ways to better meet their needs and offer ideal solutions in a way that appeals to their sensibilities.

Entrepreneurs often spend years developing a project that fulfills the needs of their target market. 

But things work a bit differently in commercial real estate, where success depends largely on attracting the right investors and addressing their needs upfront.

Convincing real estate investors to give your venture a ‘go’ is essential for building a brand.

An elevator pitch can help you get a foot in the door, but a compelling brand story is what you need to seal the deal.

Here’s how to create a story to help you secure investors for your commercial real estate projects.

Establishing legitimacy

Taking time out of their busy schedule to listen to your pitch is low on an investor’s list of priorities. 

To catch investors’ ears (and eyes), make it clear that considering your project is in their best interests from the moment you introduce yourself.

The initial step in making a solid first impression is identifying and studying your target market, so you start with a keen understanding of your prospect’s goals.

Start with these four essential questions: 

• What type of investors do you want to attract?
• How do their interests align with yours? 
• What are their priorities? 
• What are their concerns (fears/pain points)?

To encourage investors to consider your proposal, assert your legitimacy from the get-go:

• Introduce yourself in a personable way that showcases your values — investors put relationships and trust first since you’ll be managing their assets. 
• Highlight your first-hand experience and share proof that you have a track record in commercial real estate.

While sharing your values and vision are essentials, your brand story needs to be backed by concrete evidence — data that investors can only acquire through you and your underlying data management systems.

Once your legitimacy as an entrepreneur is established, show your target market that you are the best candidate to fulfill their needs.

 

Fulfilling your target market’s needs

Why should real estate investors participate in your venture? 

To tell a compelling story that provides context, you must identify your target market’s desires and the obstacles they face.

Most investors will raise some concerns when hearing your proposal. 

Be proactive with your message and speak clearly to your investors’ objectives and needs. They’ll feel confident you understand their struggles and priorities.

You’ll convince them not only of the viability of your venture but that it will provide the outcome they’re seeking.

A compelling brand story also underscores why investing in your project is compatible with their values and priorities as individuals and organizations.

Besides establishing a connection with your target market and interesting them in your project, your brand story can also help you stand out from the competition. 

 

Differentiating yourself from the competition

You are likely one of many entrepreneurs competing for an investor’s attention and funds. 

Despite being one business among many, your brand story can help you distinguish yourself and convince investors that you are the right bet.

To tell your story, consider what your brand offers that is unique and then include any non-commercial facts or anecdotes that can speak to investors.

Business plans and other economic reports and projections can indicate that your commercial real estate project is viable; however, formal reports are limited by formats that offer little creativity. 

But with your brand story, you have infinite flexibility in the way you appeal to investors. 

Though the services and the projects you offer may be similar to others in many respects, brand storytelling gives you the freedom to express yourself and make a lasting impression.

 

Why a compelling brand story can help you attract investors

An effective brand story plays an essential role in getting investors. It resonates and connects them with you and your project. 

For the highest chances of success, your brand’s narrative should relate to your target market’s concerns and priorities, and demonstrate why you — out of many — are best positioned to help them flourish.

More than a marketing gimmick, your brand story allows you to catch the attention of backers that your commercial real estate project needs to take flight.

‘Data’ can mean many things to different people in the commercial real estate space. 

From one perspective, data consists of statistics on leasing spreads, property valuations, tenant behavior, and marketing KPIs. It’s a powerful tool that enhances decision-making processes across a portfolio of businesses or real property. 

But for many commercial real estate operators, data is a mountain of Excel spreadsheets that gather virtual dust in a forgotten computer folder. It is something that is collected but not used consistently in a structured way to drive growth. 

In the past, having the ‘we’ll address it later’ attitude toward data did not prohibit an operator from achieving returns. However, today, the companies that leverage data-driven decision-making are achieving the most in commercial real estate. 

In this article, we’ll explore how approaching data as a language enables commercial real estate operators to extract the full value from their data. 

What is ‘data?’

Data can be any bit of information that you collect, digitally or traditionally. 

In prior decades, operators fixated on market and property numbers, such as: 

• Cap rates. 
• Property values.
• Lease rates.
• Rent rolls. 
• Schedule of expenses.
• Net operating income.

But data has since expanded to include many more soft variables, such as: 

• Property showing volume.
• Foot traffic generated.
• Marketing metrics. 
• Energy efficiency.

Curiously, a myth has persisted that getting the data is complicated. In a survey of real estate managers conducted by Deloitte, the majority spent more than 80% of their time gathering and manipulating data. 

While gathering data was once considered a daunting task, it has become much easier due to the recent development of numerous ‘prop tech’ companies and data analytics firms that streamline the task. 

Data speaks many languages

Would you assemble the United Nations without asking members what language they speak and employing a qualified interpreter?

No, because nothing would get done. 

Yet, this happens when owners don’t take the time to assess what language their data speaks and develop solutions and teams to bridge the gap. 

The challenge commercial real estate operators face when approaching data utilization is not knowing what language their data speaks or how to put it to work.

For instance, the data in your BIM (“Building Information Modeling”) system and the data in your asset management platform are held in different formats and are often siloed (isolated) in various software or databases. 

How do we unravel and interpret the message — knowledge — hidden in our data?

We leverage centralized data management and analytics systems that pull all the data together and help us make sense of it. 

But it’s not just tech — we also need a team of advisors that understand how the data fits together and what the reports are trying to tell us about our situation and the market.

Prevailing despite a moving target 

Conceptualizing data as a language, you can bring in the synergy of tools, technology, and people to translate data into knowledge that will inform your strategic decisions. 

Approaching data through this lens has become critical for commercial real estate as the industry heads into new territory. We’re confronted with a dynamic market that is redefining CRE asset classes.

The work-from-home trend, the demand for last-mile industrial, and the instability in retail require us to re-assess our strategies — a task for which we need the best intel we can get.

By translating data across your systems and putting it into actionable forms for management, you can more intelligently make critical decisions.

Discovering the missing element 

Analysts remind commercial real estate operators all the time that data is essential. 

Still, losses and inefficiencies confirm there’s a missing element between data gathered and data successfully harnessed to improve our investment and development strategies. 

Implementing data management systems and partnering with the appropriate professionals enables you to take raw information and transform it into metrics that inform success. 

Collecting data is crucial but not as vital as decoding the language your data speaks and what it’s trying to tell you.

Anyone can purchase commercial real estate as long as they have enough investment capital and financing.

But, if you want to be successful in building a portfolio that naturally scales, you have to do things differently than the competition.

You must constantly evolve, optimize, and innovate in your processes and offerings. 

As the needs and desires of investors, tenants, and users continually shift according to the growth of their businesses, the only way to succeed in commercial real estate is to stay ahead of the curve.

Evolution drives innovation

Commercial real estate has operated the same way for decades (and longer). 

Investors acquire and develop buildings, find tenants, set and collect rents, cope with operating expenses, and seek to maximize their net operating income (NOI).

The cycle continues with stable income as the lifeblood of operators.

But over time, especially with continuing advances in technology and the appearance of disruptors on the real estate scene, strategies began to reform. 

Commercial real estate operators had to adapt to the changing industry and find innovative ways to provide advantage-yielding value. 

For example, the oft-repeated mantra of ‘location, location, location’ typically resulted in two assumptions: 

First, if you had the ‘best’ location in town, the tenants would inevitably come. 

And, second, having a great location made many commercial real estate sponsors complacent: “We’ve got the most desirable location, so let’s dictate the rental and leasing terms.”    

Yet this ideology began to change as many commercial real estate firms started to innovate — or adapt innovations — and create more efficient processes for acquisitions, financing, development, and management.

Positive feedback loop

Ever heard the cliche that ‘Energy begets energy’ in the context of fitness?

The equivalent in entrepreneurial life is: ‘Innovation spurs innovation.’

We see this in sustainable design and construction. The evolution of Computer-Aided Design (CAD) to Building Information Modeling (BIM) allowed designers and engineers to proactively (pre-construction):

• Look at the long-term effects of weather on efficiency and durability.
• Select optimal materials to deal with specific environmental conditions.
• Study carbon emissions during the building construction phase and throughout the lifecycle of the property.

This, in turn, allowed architects and engineers to develop new design strategies, craft more efficient materials, and advance green building tech — yielding benefits in terms of efficiency, comfort, and health that both landlords and their tenants enjoy.

Back-end innovation

Innovation also occurs on the ‘back-end.’

This is where entrepreneurs leverage the primary innovations introduced to the industry to improve their processes and offerings on a client or user level.

In a CRE context, developers incorporate enhanced amenities and facilities for tenants — environmental controls, natural views and lighting, ideation/creative zones, fitness areas, communal recreation, food service, and more — to support users’ productivity. 

While not strictly technological, these strategies are innovative in the sense that building and workspace design shifted in focus to the needs of the user.

Additionally, the experience for property managers is unified and uplifted by improvements and integration in the processes of leasing space, booking and staging viewings, signing leases, collecting rents, and paying invoices.

Transitioning from being location-centric, many commercial real estate projects have become a ‘destination’ where people want to work and live.

In practice 

Cortland, a developer based in Atlanta, is an excellent example of how innovation is transforming the industry via a shift in focus.

In 2015, Cortland had around 5,000 units. Now, they have more than 60,000 — more than 10-fold growth.

Their value prop is built on putting residents’ needs front and center. 

By offering a superior living environment, the brand has become synonymous with providing something ‘extra’ — and an affordable, high-end lifestyle to which residents aspire. 

But most of all, Cortland is a model of how innovation can transform your commercial real estate business without significant changes in the fundamentals of building construction and management. 

Keep moving forward 

Innovating and adapting is the only way to set yourself apart and challenge the status quo.  

Accomplish this by studying and considering your tenants’ and stakeholders’ priorities. 

When you find new ways to deliver value and run lean, you’ll be a game-changer in the commercial real estate industry.

Is real estate a commodity?

With information more accessible than ever, investors can compare offerings from a wide variety of sponsors. And thanks to the tech-enabled industry environment, they’re no longer limited to investing within their personal networks or geographic area.
As a result, real estate is often considered a commodity: investors care little about who is producing the returns as long as the cash flow is stable and the ROI meets their objectives.

But is this true, or is it that investors don’t frequently encounter sponsors presenting a differentiated (unique) brand and offer?
While every real estate company believes its offerings are ‘special,’ the reality is that most investors perceive real estate firms as interchangeable — much like the underlying assets.

Cliché marketing phrases like ‘superior risk-adjusted return’ and ‘value-add strategy’ don’t make a company inherently unique. Additionally, most firms share the same organizational structure and investment approach.

So, if the returns are comparable and models commonplace, how can any company stand out among the expansive pool of competitors?

To de-commoditize, you must understand what matters to stakeholders, develop a compelling vision, and devise an evidence-based plan to materialize it.

When investors understand the why, they’ll appreciate the investment strategy — and the team behind it — rather than the strength of the deal alone.

Collaborative Disconnect

When teams are siloed and procedures rigidly followed, it’s less likely that working groups will evolve and innovate.

Many real estate firms rely on generic and ineffective organizational structures, wherein each department manages a specific set of isolated tasks.

In most firms, the senior management consists of a few industry veterans, each managing their respective functional area without input or collaboration with the broader team.

Sound familiar?

Though each firm has its style in terms of the types of assets, return requirements, financing structures, and operational procedures, none of these differences individually constitutes a unique value proposition.

Investing in real estate is rarely a linear process, so why are most companies structured this way?

What’s missing is an organic model that inspires creativity, promotes transformational leadership, and leads to innovation and improvements in strategic decision-making.

By breaking from confined corporate structures, teams can better understand the role their departments play in the integrated investment strategy.

For example, the acquisition team can educate the management group on factors that maximize the property’s value in the current market. Likewise, the management team can share insights from tenants with the development unit — the collaboration and idea generation possibilities are endless.

Returns without context won’t convince someone to invest in you. Investors need to understand how you achieve returns — what is your vision, how innovative is your business plan, and most importantly, “can I trust you?”

Gaining an edge through data and analytics

Companies that conscientiously learn about the people they serve gain a tremendous advantage over their competitors. To illustrate, Cortland, an innovative global real estate firm, offers a unique hospitality-like living experience in their multifamily properties based on what their residents want.

Nowadays, rooftop pools and state-of-the-art fitness centers are almost basic requirements in luxury apartments. But quite often, residents don’t take advantage of all the amenities their buildings offer.

To minimize the inefficient utilization of on-site facilities, Cortland leveraged data and analytics to identify what features are crucial to each resident’s lifestyle. Their personalized approach took offerings to the next level.

By leveraging extensive data from their residential properties, the company attracts residents more effectively than competitors. To residents, Cortland’s products are no longer undifferentiated substitutes for any other Class A offering in the market.

Unsurprisingly, Cortland’s apartments continually generate high returns and win awards. The firm’s accolades confirm what is now an open secret: real estate companies that incorporate data and analytics into their processes serve their customers in a more focused manner and drive enhanced investment performance.

Connecting vision with strategy

The final step in de-commoditizing your real estate company is to understand the impact you have on society.

As real estate is tightly integrated with the lives of everyday people in our community, companies must consider the impact their decisions have on tenants and the world in which we live and work.

A recent report by PwC highlights this trend: “Now, more than ever, the real estate industry has the chance to take the lead in using planning and development skills and investment capital to reshape our work and lifestyle environments.”

Companies are increasingly held accountable for how ESG (environmental, societal, and governance) factors impact their environment.

KPMG found that 83% of industry leaders believe tenants and residents will start pressuring landlords to ensure their buildings are environmentally friendly.

Company leaders who address these concerns position themselves as thought leaders that drive societal change rather than merely as reactionary suppliers of real estate commodities.

Moving beyond the commodity

As investors consider more options than ever, it’s become more difficult for real estate companies to transcend their reputation as commodities.

A unique brand is more than just high returns. It communicates your values and provides compelling evidence of your commitment to bringing your vision to fruition.

If data and analytics don’t fit your strategy, think about what else you can offer that your competitors don’t (or can’t), then make that your unique asset.

Real estate is an industry where decisions are felt by real people. Consequently, the way you present yourself to the market and community will determine whether your firm is perceived as a commodity or a distinct creator of value.