Preventing the Accelerated Obsolescence of Your CRE Enterprise and Assets
Preventing the Accelerated Obsolescence of Your CRE Enterprise and Assets
Change is inevitable.
Yet, it drives value when we see where the path is headed and then adapt to position our firms at the forefront of the wave.
When we don’t, we’re faced with accelerated obsolescence.
That is, if we’re not continually redefining our brands, properties, operations, and enterprises, they will decline in value more rapidly than they would otherwise.
So, how do we face change head-on?
By adopting new technologies and methods that allow us to continue providing the greatest value to our investors, users, and all our stakeholders.
Let’s look at several principal strategies required to put the brakes on obsolescence.
Stakeholders push us to evolve
Obsolescence is probably self-explanatory to an owner or operator of commercial real estate, but it’s worth revisiting what it is. It’s an unavoidable consequence of three phenomena: shifting technology, developing more efficient business models, and changing consumer tastes and expectations.
To illustrate, consider the expectations of perhaps our two most important stakeholders: investors and users.
Investors insist that we reliably produce positive and increasing NOI and ROI, while our users want the most modern spaces, digital communication and management platforms, and energy-efficient designs and systems.
To keep our revenues up and tenants happy, we need to satisfy and exceed their expectations. If we don’t, obsolescence will gradually creep in over the years until we’re faced with the sudden realization that we’re losing value and being surpassed by forward-thinking competitors.
Environmental, social, and governance (ESG): business meets humanity
ESG is taking the spotlight in the 2020s.
More investors and users are demanding that we operate in ways that conscientiously preserve our natural environment.
Further, both groups expect that we do business in a manner that not only supports the bottom line but also has a positive impact on the community (local, regional, or global).
Incidentally, when we work to better our environment and the community, we generate public goodwill and reduce our carbon footprint — as well as energy, water, and materials expenses.
And for our investors and partners it’s become even more crucial, in light of recent recessions, that our operations are most transparent and ethical.
A commitment to ESG principles guides us toward practices that inherently maintain the value of our properties, fosters stakeholders’ trust, and grows our enterprises and brands.
Tech adoption
If you’ve been following my blog or social feed for some time, you’ll know my position on incorporating tech into your operations and offerings.
Adopting the latest (though most credible and proven) tech is essential to securing the best deals and executing your projects — from acquisition and renovations to property management and exit — most efficiently.
These days, there isn’t a facet of operations that hasn’t been infiltrated (i.e., optimized) by advancements in tech.
There are numerous platforms, ours included, that facilitate due diligence, reporting/auditing, building design, finance and tenant management, and everything else we do to deliver that value-add for our investors and users.
Leveraging tech not only lets us deliver greater monetary value, but it also allows us to render a better experience for our stakeholders.
All things being equal, our partners (investors and tenants) will opt to work with sponsors that are simple to communicate with, and that make it easy for partners to understand how we’re generating value — tech enhances that capability ten-fold.
When our stakeholders don’t see nor experience our value, we’re slipping into obsolescence.
Smart design and improvements
This might be a more pragmatic consideration, and one we’re all fairly familiar with, but it’s directly correlated with the two prior strategies: ESG and tech adoption.
Our tenants aren’t just looking for a space to live or do business in; they’re also looking for that experience, and they want it to come at a cost (leasing and operating) that’s better or comparable to your competitors’.
How can we consistently meet this ever-present expectation?
The solution is obvious: keeping our properties up to date and ensuring that they’re relatively inexpensive to build, operate, and utilize.
This strategy is vital for both new builds and existing properties.
When we’re in the midst of the integrative design process, we can utilize building information modeling (BIM) to ensure that our finished product will function efficiently — before we break ground.
And before we empty our coffers on renovations, we can anticipate the expense and ROI of each type of improvement to ensure that we’re investing our dollars where they’ll give us back more than we put in.
Getting proactive
A proactive approach is the best medicine to cure accelerated obsolescence.
While there is an expense involved in implementing new tech, adopting ESG, and keeping our properties on the cutting edge, the payback in terms of the goodwill and loyalty of our stakeholders yields immeasurable dividends.
The predictable ROI made possible by tech counters obsolescence and enhances the value of our enterprises and assets.