Is Your Real Estate Firm Just a Commodity to Investors?
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.
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.
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.