Converting office buildings to residential use is not a new concept in New York city real estate. However, the idea is re-emerging as a way to counter pandemic-related market shifts. There is an imbalance in the New York City real estate market. We have an oversupply of arguably obsolete office space and a drastic undersupply of reasonably priced residential real estate.
This situation has existed for some time now and the trend towards remote work resulting from the pandemic has had a significant negative impact on office fundamentals, making the imbalance worse.
For example, Yelp recently announced that it was leaving offices in 3 major US cities including two locations totaling 270,000 SF in Manhattan. In announcing the decision, Yelp’s CEO cited an employee survey that found that 86% of their workers preferred to work remotely. And explained that when they reopened these offices, utilization was less than 2%.
From 1995 to 2006, a tax incentive program known as 421g enacted for Lower Manhattan enabled more than 15 million square feet of conversions from office to residential use. Under this program, the owner received several substantial property tax benefits.
Residential conversions have also been completed successfully in other markets. In 2021 alone, 151 commercial properties across the country were converted to apartment buildings.
So what are the prospects for future conversions in New York City?
Manhattan currently has 37 office buildings exceeding 100,000 SF where at least half the building is listed for lease and this only accounts for the publicly listed available space. Many of these distressed office buildings are encumbered with large mortgages. On the surface, there is no shortage of conversion candidates.
A well-executed residential conversion generally costs far less than new ground-up multifamily construction. However, there are some significant challenges to executing this strategy.
Possibly the biggest physical obstacle is that many office buildings have large floor plates that lack accessible light and air in the interior. One possible solution is to use the interior of the building for storage, home offices or other amenities that do not require windows.
Zoning is another big obstacle. Many of the city’s office buildings are located in areas zoned only for commercial uses. Earlier this year, NY State Governor Hochul proposed zoning changes that would make office-to-residential conversions much easier. However, these proposed changes were rejected by the State Legislature.
It was recently announced that 55 Broad Street, a landmarked 425,000 sf, 30 story building in the Financial District was sold and will be converted to 571 apartments. The sale price was $180 million, which equates to $425 PSF. This price is substantially lower than most other Manhattan office buildings that are currently listed for sale.
This imbalance is a big problem with no easy solution. To the extent that mortgages on these buildings are underwater, these loans may need to be sold. It will be interesting to see how this situation evolves over time.
The joint marketing effort between Mission Capital and Marcus & Millichap contributed to the recent successful auction of a $26,000,000 Non-Performing Loan secured by a largely vacant mixed-use building in the Nomad neighborhood of Manhattan.
Mission Capital, a subsidiary of Marcus and Millichap, now leverages a platform of nearly 2,000 investment sales and financing professionals in 80 offices. These boots on the ground have made Marcus the top investment sales broker in the United States based on transaction count over the last 15 years. The proprietary comparable sale data and market research provided by Marcus increases Mission Capital’s valuation accuracy and execution success.
The joint marketing effort contributed to the recent successful auction of a $26,000,000 Non-Performing Loan secured by a largely vacant mixed-use building in the Nomad neighborhood of Manhattan. Mission Capital collaborated with the Anton team at Marcus & Millichap, who helped to accurately value the troubled collateral by understanding COVID-19 impacted lease up timelines, rental assumptions and the lengthy judicial foreclosure process in New York. Of course, the combination of Mission Capital’s comprehensive investor data base of institutional note buyers and the alternative capital sources that typically transact with the Anton group was powerful rocket fuel for the aggressively bid live auction conducted on Real Insight Marketplace.
The benefits of the Mission Capital Marcus & the Millichap team extends well beyond traditional core asset classes. Our team is in the process of selling a Single Room Occupancy, or Co-Living asset in the Mission District of San Francisco. The persistence of COVID-19 variants has led to prolonged elevated vacancies in the SRO rental market since March of 2020 as remote workers migrated to cities with a cheaper cost of living. As people begin to transition to a post-COVID-19 world, employees are returning to gateway cities, which is evident by the rebound in urban multi-family rental rates as well as increased demand for SRO assets. In developing our valuation thesis and marketing plan, Mission Capital drew on its own expertise in arranging financing for co-living assets in the San Francisco – San Jose market and Marcus & Millichap’s Taylor Flynn. Taylor is the leading investment sales broker of Co-Living and SRO properties assets in San Francisco.
The culture of sharing market intelligence and sales expertise throughout Marcus & Millichap’s various lines of business continues to be imperative to effectively advising our clients and generating positive outcomes.
joint marketing effort Mission Capital Marcus & Millichap
Credit Facilities are a critical tool for all non-bank lenders in today’s fast paced credit market. These lending relationships come in all shapes and sizes, including warehouse lines, repo facilities, term loans, subscription lines, and facilities with hybrid characteristics.
Credit Facilities are a critical tool for all non-bank lenders in today’s fast paced credit market. These lending relationships come in all shapes and sizes, including warehouse lines, repo facilities, term loans, subscription lines, and facilities with hybrid characteristics of any of the above, for both commercial and residential lenders.
A well-structured facility expands lending capacity, accesses a lower cost of funds and increases ROI through leverage.
Subscription lines and some warehouse and repo lines are designed for very short-term use, allowing aggregation of enough loans for securitization or the issuance of a CLO (with even lower costs of permanent capital). Typically, these gestation lines will be for 30 to 120 days at a time to facilitate someone’s lending business with recycling features.
Warehouse and term credit facilities also allow for purchases of pools of performing or non-performing whole loans from the secondary market, to extract loans from a lender’s own CLO or to leverage REO assets acquired via foreclosure or a deed-in-lieu.
These acquisition facilities are usually made for a 2 to 3-year term to allow a lender maximum flexibility to restructure a nonperforming loan, seasoning of the reperforming loan and subsequent redeposit into a CLO. The added benefit is providing a borrower sufficient time to finish its business plan or conduct a sale or refinancing process to take out the existing lender.
It is critical to arrange these complex facilities when a lender CAN versus when a lender NEEDS TO. The lender then has this tool in its quiver at when the world goes crazy due to COVID, war, political instability, or hyper-inflation.
The extra leverage of structured credit facilities provides lower cost of capital dry powder to play offense when others may be running for cover.
Retail Sales Have Tailwinds Heading into 2022 Despite Soft End to 2021
Consumers step back in December. Core retail sales dipped 2.5 percent last month as spending that usually occurs closer to the holidays was spread over a longer shopping season. Furthermore, the highly contagious omicron variant of COVID-19 elevated case counts, keeping more people at home. Retail sales, however, are up 16.5 percent from one year ago and consumers still have more than $5 trillion additional funds in savings and money market accounts.
We consider Howard Marks (with his team of course) one of the smartest guys in the room. He is the “five tool” customer: a lender to, borrower from, JV investor in, asset buyer from and seller of assets to, many of our clients.
Amid so much purportedly expert investment advice, it is worth asking who the experts themselves listen to. One answer, undoubtedly, is Howard Marks, among the world’s most successful investment managers as well as an intellectual leader of the profession. His client memos are widely distributed among investment professionals. “When I see memos from Howard Marks in my mail,” Warren Buffett has said, “they’re the first thing I open and read. I always learn something.”
Insight on the state of the multifamily capital markets from the Mortgage Bankers Association CREF/Multifamily Convention and Expo
The Mission Capital team spent President’s Day Weekend at the Mortgage Bankers Association (MBA) CREF/Multifamily Convention and Expo in San Diego…and the overall consensus is that commercial real estate lenders, acquirers, and investors continue to seek multifamily properties more than any other asset class.
Not all deals, however, are equal in the eyes of capital sources. Certain multifamily deals are more difficult to finance.
Construction and renovation projects remain the most challenging. The uncertainty of project funding schedules, significant capital expenditures, low occupancies, and a lack of in-place cash flow eliminates many capital providers from participating in these types of transactions. Agency financing is not available for these projects either, as it requires a 90-day history of 85%+ physical occupancy and 70%+ economic occupancy.
By removing Fannie Mae and Freddie Mac from the equation and adding a strong mortgage broker, owners and operators can essentially “auction” their project to the lender with the best terms and lowest rates. Hundreds of viable lending options exist with a wide variety of rates, terms, structures and capital stacks from every type of lender: bridge to agency, CMBS conduits, debt funds, hard money lenders, and mortgage REITs, as well as money-center, regional, and community banks.
Here are some examples of how conducting an “auction” process amongst lenders results in materially better economic and non-economic terms for Mission Capital’s borrower clients:
Queens Plaza South
Long Island City, New York
Senior & Mezzanine:
90% LTC – Mid single digits blended rate
The Borrower achieved 90% leverage by allowing the land lender to be subordinate to the construction lender. The Borrower was able to dictate final terms by having multiple higher rate construction lenders competing in the final “auction.” Mission negotiated a pay and accrue feature, versus borrowing the full interest reserve that reduced the capital stack by over $4.0 mm. The lower total capital stack reduced the equity required for the transaction.
Multifamily with Retail – Construction
Senior Construction Loan:
High 200’s over LIBOR pricing
The Borrower received offers from multiple banks, insurance companies, and debt funds for senior and mezzanine construction financing. The Borrower was able to decrease the spread from an existing relationship lender due to Mission’s “auction.” Financing offers gave the Borrower multiple points of negotiating leverage with relationship lender on proceeds, term, rate, structure, and recourse.
The Equitable Building
Senior Bridge Loan:
Low 300’s over LIBOR pricing
The Borrower received proceeds to fully refinance the Property and received a $3.0mm earn-out structure. The Borrower saved $1.55mm, after Mission’s advisory on the prepayment of the in-place debt. The Borrower saved an additional $125,000, as Mission negotiated a favorable interest rate cap purchase schedule.
Senior Permanent Loan Proceeds:
$79.8mm over 11 loans
Term: 10 years Interest Only
Low 400’s WACC
Added Value: The Borrower was given the ability to upsize the loan 180 days following closing even though standard agency lenders do not typically allow upsizes prior to the loan’s first anniversary. Individual loans provided the Borrower with flexibility and ability to avoid cross-collateralization. Closing with a single lender significantly decreased closing costs. Mission provided the Borrower with higher leverage options from non-agency capital sources- a necessity given a volatile agency market at the time of close.
Mission Capital Advisors has hired Jillian Mariutti as director in its debt and equity group, where she will focus on originating and structuring real estate capital for the nation’s premier owners, investors, and developers. Prior to Mission Capital, Jillian worked at JCRA Financial LLC as the Head of Real Estate North America and was responsible for providing foreign exchange and interest rate risk management services to Real Estate clients. Continue reading about Jillian in her bio
Mission Capital Advisors has hired Jillian Mariutti as director in its debt and equity group, where she’ll help arrange a variety of capital for the firm’s property-owning clients.
Mariutti most recently was the head of real estate in North America for JCRA Financial, a derivatives advisory firm. In that role, she provided foreign exchange and interest-rate risk management services to the company’s real estate-owning clients.
Before that, she was with Wells Fargo Securities, where she marketed and structured interest-rate management services to REITs and other property owners.
Attention community bankers: it is time to dip your toes in the sea of data if you're not doing so already. More than ever, banking is as much an information business as it is a financial business. With the vast amount of data banks have on customers and transactions and spending habits, those that aren't effectively mining this data risk falling into irrelevance. For some small banks, investing in data analytics remains a tough call. Margins are already thin from the operating environment. Tech budgets are consumed with bridging the gap between running legacy technology and offering digital products. Perhaps rightly so, they are afraid to sink money into a solution without fully understanding the problem they are trying to solve. But it is a jump they must take in order to maintain their edge with customers. "The reason [small banks] need to budget for this is because bigger banks are absolutely budgeting for this," said Karan Bhalla, managing director at IQR Consulting, which provides analytics and statistical modeling consulting services. "The rate of data being gathered now is huge and knowing things like how often customers log in to mobile banking … is redefining what loyalty is. If you don't understand that, then some other institution will and will take away customers.
Data analytics has become the Swiss Army knife of banking. From customer marketing to regulatory compliance, from fraud detection to cybersecurity, data plays an integral role in banks' daily operations. Take, for instance, compliance functions. In the past, banks typically had one group of people working on anti-money-laundering compliance and other groups working on different other types of fraud. But banks now are seeking an enterprise-wide view of risk, and investing in analytics to get it. "If you can pull all the data together, and use things like predictive analytics or machine learning to identify hotspots and where there might be potential trouble, you can fight fraud more effectively" said David Wallace, global financial services marketing manager at analytics technology provider SAS. Indeed, analytics tools for compliance purposes, risk management and fraud prevention are among the most popular, Wallace said. "When it comes to fighting fraud and financial crimes, and risk management, ultimately they are regulatory compliance activities, so it's all tied together," Wallace said. "All these things are prescribed by regulators, but banks need to do them to protect customers." Wallace added that analytics can help banks identify and combat breaches and strengthen cybersecurity. Often, if there is a data breach it might take an institution "many months to figure out what's going on," he said. Deployed in a real-time streaming environment, advanced analytics can look inside a bank's network and find anomalies that previously may have gone undetected for lengthy periods of time, Wallace claim ed. For example, such analytics could spot systems interacting in atypical ways, such as a customer service system accessing a function that supervises the general ledger, he said.
Putting the 'Big' in Big Data
It is perhaps difficult for community bank executives to see how they can effectively use data analytics when they see what some of the larger banks are doing. Consider the $251 billion-asset State Street's Global Exchange, a unit the bank created in 2010 dedicated to data and analytics. It has 700 employees. As a custodian bank, State Street's clients are constantly asking for access to more data to help them operate more effectively, said Jessica Donohue, chief innovation officer of the division. Especially for regulatory compliance, and things like anti-money laundering and know-your- customer efforts, data analytics are essential. "Analytics helps us provide our clients with a clean and clear view of risk across a complex portfolio," Donohue said. "A large asset owner, or a client with a complex banking book, needs to be able to look at risk holistically across their entire portfolio or book of business." Those are services the bank wouldn't be able to provide effectively without analytics. "Data does not start out being easy to use; it comes from a lot of different sources and the amount of it is very large. You need good analytics tools to bring that all together and serve up usable data." Community banks might find comfort in knowing that Donohue thinks the industry has only scratched the surface of how it can improve through analytics tools designed to make sense of a seemingly infinite amount of data. "I feel we are still at the beginning of this space," she said. "You're seeing a lot of the attention focus now on machine learning. The technologies that are being developed allow you to work with much larger databases in much less time. That wasn't possible even five years ago." And the proliferation of analytics technology in recent years makes it easier for even small banks to start down this path, said Bhalla, "Analytics tools are constantly being refined to mine more and more data in a more effective manner," he said. "For smaller institutions, it's much easier now to take that first step and invest in something that will give you basic intelligence. Then you can go from there and look at ROI and decide if you want to invest more, or hire quants or whatever. But there are many tools that run the gamut of varying cost, so it has to be a part of your budget, even a small part."
Don't Forget the Human Touch
Analytics tools need to be combined with expert human analysis to be most effective, said Todd Hammond, head of commercial underwriting at Cleveland-based KeyBank. When making credit decisions, generally the complexity and size of the loan will dictate how much the bank will rely on analytics. "Analytics definitely plays a huge role, but reliance on it depends on the complexity of the deal," Hammond said. "Certain small-business loans can be largely data-driven. When you move up in the commitment spectrum, we'll still use analytics but there's also a human element, such as our interactions with the client and understanding of their standing in the market." Human reasoning is also needed to make sure Key doesn't get in trouble for who it lends to. "We definitely have people looking at reputational risk, of who we can and can't lend to," such as legal marijuana businesses, he said. Still, Hammond said financial institutions will continue to do more with analytics as data becomes more large and complex. "We want to know as much about our clients so we can sell them the right products," he said. "And it's also effective for not only helping us make credit decisions, but for monitoring the effectiveness of our lending strategy."
For analytics to be the most effective, banks need a plan for how to use them, said David Tobin, principal of Mission Capital Advisors. "There's a huge amount of data that can be mined. You have to decide what you are mining for," he said. "The first thing banks really need to do is to need to establish a plan of action. Such as, 'what data from a regulatory requirement perspective do we need? What data could we mine for marketing purposes?' Then you go from there and rank all the opportunities and figure out how much you can do and how much it will cost for the right analytics tools." This is particularly important for smaller banks that likely do not have large technology budgets. But even if the bank determines it can only spend a small amount, that's better than doing nothing. "The pitfalls of not investing in your future as a bank far outweigh any benefits you might get in money saved from not investing," Tobin said.
IRVINE, CA—Big data is not, by itself, inherently useful; information is only as valuable as its fusion with industry experience, Ten-X’s Sheridan Hitchens tells GlobeSt.com in this EXCLUSIVE roundtable about big data and the real estate industry.
Finaldi; Elliot Vermes, CEO of ResiModel; Joe Derhake, CEO of Partner Engineering & Science; Norm Miller, Hahn Chair of real estate finance at
the Burnham-Moores Center for
Real Estate, within the School of Business at the University of San Diego; and David Tobin,
founder of Mission Capital Advisors, about their overall assessment of big data in the real estate industry. Stay tuned for a more in-depth feature on the subject in the July/August issue of Real Estate Forum.
GlobeSt.com: What should our readers know about big data and real estate?
Hitchens: Big data is not, by itself, inherently useful. Information is only as valuable as its fusion
with industry experience. It’s not the data itself that provides value, but the application of that data. In order to find actionable statistics, you need to analyze and curate specific insights from oftentimes oversized data sets. At Ten-X, as an online marketplace, we’ve been able to utilize data to provide global-marketing reach, allowing for more tailored and targeted marketing on specific assets. The ability to appeal to a subset of buyers and sellers that, according to the data, may be more interested in a specific asset helps us to create a more efficient marketplace for both buyers and sellers. In conjunction with a local investment broker, we ensure that potential buyers who are around the corner and around the world are covered. Due to our position at point-of-sale, as well as our partnership with Google and leading industry data providers, we will be able to provide customers with real-time, actionable data. The value of any data changes with time—a lease comp from three years ago probably isn’t very helpful today. So if we can provide relevant, verified data at the exact moment someone is looking to transact, we will remove risk and add liquidity to the market. Stewart: The attack on Essex serves as a warning to all real estate companies that collect and store information on behalf of renters, tenants, vendors, consultants and buyers. Multifamily property owners, management firms and related interests, however, are at particular risk due to the high-level of personal information, including banking, social security, driver’s license numbers and employment, collected on consumers during the rental process. Property managers should also be aware that they fall under both FTC rules. Since property managers provide a financial service for landlords they fall into the category of financial institution under the Safeguard Rule, and because they use credit reports to screen tenants, they are also subject to the Disposal Rule.
Vermes: One thing that goes hand-in-hand with big data is data visualization—charts and other graphic tools that make it much easier to grasp where things stand and when trends are in motion. Whether you’re analyzing rent revenues at your multifamily property or energy
expenses at a commercial building, the human mind is much more effective at understanding information in a visual format rather than solely comprising a list of numbers. In order to be able to analyze and visualize data, it first has to be in a usable format. While you may be bombarded by massive amounts of data, it is often useless without an enormous amount of time-consuming manual conversion from a yellow pad (or other non-digital equivalents) into a standardized format. As compared with most sophisticated trillion-dollar industries, real estate has a surprisingly high number of “yellow pads.” In the multifamily space, people frequently receive rent-roll data in PDF or other difficult-to-analyze and database formats. As a result, the data is often not analyzed as comprehensively as it could be, and those who do analyze it face the arduous task of first getting the data in their own Excel templates prior to being able to analyze it. One of ResiModel’s most popular features is our data-capturing capability, which extracts the data out of the property management reports that you receive in PDF and Excel formats and converts it to a format that can instantly be analyzed and mined. Digitizing and standardizing information is the prerequisite to big data.
Derhake: It’s important to realize that big data creates a competitive advantage not only in terms of CRE investment and lending, but also for better-managed and -operated—and therefore more valuable–assets. Collecting data from smart building systems, tenant smart- phone usage, tenant management systems, etc., to gain a better understanding of how buildings are used allows property owners and operators to improve facility
management and capital planning. For example, building energy efficiency can be improved by adjusting building systems to more efficiently meet user demand. Better-operated buildings yield better returns, and in in this way big data has the potential to increase significantly the marketability and value of commercial real estate assets.
Miller: Technological innovation and the use of new data sources is not as easy as monitoring Google searches for your office building or other social media, although those can help manage branding. It is an experimental and labor-intensive process, which is why it will take some time
to fully implement and utilize all the new data exploding from connecting everything. The result, however, will be safer, more-efficient and better-managed real estate; faster and more efficient valuation; and speedier due diligence. Don’t expect this to happen tomorrow, yet it is very exciting to see what is possible, and that is what we are learning now.
Tobin: Extensive property-level information is readily available online today, particularly in the real estate sector. While there are many benefits to this “open-source” information, some find it disconcerting that their mortgage documents and personal information relating to their home are available online. This proliferation of data has a distinctly positive impact on real estate, bringing more lenders and capital and lower interest rates to the space, because open information
mitigates risk for lenders. I am personally a big advocate of technology and information and truly believe that the benefits of big data outweigh many, but not all, concerns.
IRVINE, CA—The best defense against a security breach is prevention, which starts with eliminating your business as a target by controlling access to sensitive information, Manly, Stewart & Finaldi’s Morgan Stewart tells GlobeSt.com in this EXCLUSIVE story.
IRVINE, CA—Security-breach prevention starts with eliminating your business as a target by controlling access to sensitive information, Manly, Stewart & Finaldi partner Morgan Stewart tells GlobeSt.com. We spoke with Stewart, along with Elliot Vermes, CEO of ResiModel; Norm Miller, Hahn Chair of real estate finance at the Burnham-Moores Center for Real Estate within the School of Business at the University of San Diego; David Tobin, founder of Mission Capital Advisors; Charles Clinton, CEO of EquityMultiple; Michelle Schaap, a member of Chiesa Shahinian and Giantomasi’s media and technology, construction and corporate and security practices; and Jorge Rey, director of information security and compliance for CPA firm Kaufman Rossin, about how the industry should cybersecurity. Stay tuned for a more in-depth treatment of cybersecurity and big data in real estate in the July/August issue of Real Estate Forum.
GlobeSt.com: How should the industry approach cybersecurity when more and more of our industry is embracing technology and therefore open to risk?
Stewart: The best defense against a security breach is prevention, which starts with eliminating your business as a target by controlling access to sensitive information. Strategies might include holding sensitive materials in a separate, non-networked database; limiting employee access to sensitive information; disallowing the transmittal of sensitive information over electronic communications; and creating an employee manual that details the use, possession and protection of sensitive information.
There are many ways to control access to electronic information, eliminate risk and prevent a security breach. Computer hacker Kevin Mitnick, in his book Ghost in the Wires, offers these tips.
Make the right IT investments to protect information, including firewall, virus protection and monitoring software.
Update apps regularly.
Secure laptops, mobile phones, tablets and other mobile technology with encryption software.
Enable remote wiping, which allows your provider to erase information on mobile devices when lost or stolen.
Establish strong passwords.
Backup regularly to an external drive.
Be smart when surfing the Web and downloading information: every “warning box” that appears should be taken seriously, and understand that every new piece of software comes with its own set of security vulnerabilities.
Educate employees. They need to understand the importance of your company’s data and consequences of a breach, measures they can take to protect it and what they may be doing that is dangerous.
“One of the most difficult things to do is protect end users against themselves,” Watchinski concluded, “but ultimately, prevention is the best approach to handling your data security.”
Hitchens: Companies need to understand that cybersecurity is a core component of the implementation of new technology. If you’re employing technologies as a central component of your business, then you are, for all intents and purposes, a technology company. As a result, businesses should specifically seek out and hire technology professionals that focus on keeping information safe and secure.
Vermes: One thing that is important to remember is that it is not only online applications that
are at risk. Unless your computers are literally off the grid and completely disconnected from the Internet, your files are always vulnerable to hackers. It is extremely easy (and common) for hackers to send malware to PCs. The reality is that your data is much safer stored in a responsible SaaS application that is serious about security than it is when stored locally. Miller: There are several firms in Israel that have proven to be great at countering cyber- attacks, and there are a few in the U. such as McAfee. I suspect we will need to have numerous layers of safeguards and security to run the systems of the future. Many new firms will likely emerge to provide cyber safeguards and users will need to perform due diligence to determine which one to use. Tobin: Going forward, I think the standard for access to smartphones, laptops and desktop systems should be biometric, and we will likely see more fingerprint and retina logins. Similarly, transaction security will be enhanced with technologies such as blockchain. Systems are only as safe as the weakest link, and passwords are a weak link for a variety of reasons: written on paper, stored in an unsecure password manager or simply too simple and easily figured out. You cannot, however, steal someone’s fingerprint or eyeball! Substantial resources have been dedicated to developing these technologies, and we’ll likely see more implementation of these innovative approaches to cybersecurity in the near future.
Clinton: Adopting something new always involve some level of risk; the question is whether the
pros outweigh the cons. I don’t think anyone is questioning the huge benefits that technology will bring to the industry. The necessity for cybersecurity will vary from business to business, but for those portions of the industry that hold valuable proprietary data, the first step is recognizing the value of that data and then taking the necessary steps to protect it. Luckily, there’s already an entire industry dedicated to cybersecurity, so the infrastructure is already there. One very small example is web hosting—our platform is hosted by Heroku withinAmazon’s secure data centers. Amazon has a level of security in their data centers that very few companies could hope to replicate, so leveraging their infrastructure is an enormous advantage. Rey: As the commercial real estate industry increases its reliance on technology, companies should start incorporating cyber security risk within their risk-management framework. For example, companies should consider the potential impact of sensitive information being stolen, whether it is tenant information or other sensitive information such as investment strategies, business plans, current or future investors lists and engineering drawings. The industry should start look to best practices from industries such as financial services and healthcare that have long been addressing cyber security. Best practices may include periodic risk assessment s, vulnerability assessments, employee training and information-security programs tailored to the risks facing each company and the information they want to protect.
Schaap: It goes without saying that any responsible company should (and, by law, is required to in many cases) implement appropriate security procedures —including both cyber- and physical security measures. Companies should ensure that they not only have firewalls and antivirus software, which offer protection against certain types of threats, but also that they have their sensitive data encrypted both at rest and in transit. Companies should audit their existing systems with qualified, outside vendors—not the personnel or vendors that designed the subject systems—to understand what sensitive data the company has, where it resides—physically and electronically—and how it is stored in relation to other company systems. Such outside vendors
should also ensure that there is not already an undetected “presence” in the company’s systems. Once tested (and redesigned, if appropriate), systems should be tested regularly (by “white hat” hackers) to test vulnerabilities. Where vulnerabilities are detected, measures must then be taken to redress them (consider the Target losses due to Target’s failure to respond to its own notices that its systems are vulnerable). Security efforts should also include people: Personnel must be trained to recognize phishing,spearfishing, and other improper efforts to gain unauthorized access to a company’s systems. Employees should not be permitted to use unsecure devices (e.g. cellphones, PDAs and/or tablets) to transmit information of a sensitive nature. Proper personnel training on these critical security issues will thwart many bad actors’ efforts to access company records and systems. Vendors that service a company must also be carefully vetted to ensure that, to the extent such vendors have access to company systems and confidential information, they, too, take appropriate security measures. If companies use “data rooms” and data- sharing cloud providers to facilitate the exchange of documents in due diligence, they must carefully review the terms and conditions of the sites and systems used to make sure that security is assured and that the company will remain the owner of its data at all times. Companies should also ensure that information is fully backed up, stored and quickly retrievable. If a company is hacked, or the subject of a ransomware attack, it must be able to restore business records and resume “business as usual” quickly. Absent such measures, companies may find themselves compelled to pay ransom to regain access to their valued data. Additionally, companies should invest in cyber insurance. But purchasing insurance without understanding the coverage and exclusions may leave the company unprotected—or without the level of protection it thought it had. Business-interruption coverage that is not part of a cyber-risk policy may not cover the losses incurred in a cyber-attack. Companies must have an action plan for the “when” (and not the “if”). If a cyber-attack occurs, the date the attack is discovered is not the time to develop a plan of response. A comprehensive response plan should clearly identify all the necessary players, escalation procedures and outside parties—including law enforcement, insurance carriers, legal professionals and technology/forensic experts—so that the company can react immediately and responsibly. Having proper procedures, protections and action plans in place in advance can protect the company from a world of hurt. The last thing a company executive wants to explain is why the proceeds from a multi-million-dollar transaction have just been wired to an untraceable account in Russia
IRVINE, CA—As big data becomes more readily available in the marketplace, it will also become increasingly important for businesses to identify quality curators of this data so that the foundation for their decision making is solid, ATTOM Data’s Daren Blomquist tells GlobeSt.com in
this EXCLUSIVE story.
Blomquist: “Big data will become increasingly important to businesses that want to make the best decisions possible.” IRVINE, CA—As big databecomes more readily available in the marketplace, it will also become increasingly important for businesses to identify quality curators of this data so that the foundation for their decision making is solid, ATTOM Data’s VP Daren Blomquist tells GlobeSt.com. We spoke with Blomquist and Sheridan Hitchens, VP of data products for Ten- X; Elliot Vermes, CEO of ResiModel; Joe Derhake, CEO of Partner Engineering & Science; Norm Miller, Hahn Chair of real estate finance at the Burnham-Moores Center for Real Estate, within the School of Business at the University of San Diego; David Tobin, founder of Mission Capital Advisors; and Charles Clinton, CEO of EquityMultiple, about the future of big data and real estate. Stay tuned for a more in-depth feature on big data and real estate in the July/August issue of Real Estate Forum.
GlobeSt.com: Where do you see big data heading in relationship to the real estate industry?
Blomquist: Big data will become increasingly important to businesses that want to make the best decisions possible. It also will likely become more readily available in the marketplace, but as it does it will also become increasingly important for businesses to identify quality curators of big data so that the foundation for their decision-making is solid.
Hitchens: Real estate data is becoming both more robust and more accessible. I’ve been asked about what the best source of real estate data is, and I’ll often tell people: “Google.” That’s a bit tongue-in-cheek, of course, but the fact is that anyone can locate an address on Google and view it down to the street view—that’s a data set in itself.
I also believe we’ll see a fairly rapid expansion of new data sets in addition to the firming up of this core asset information. I was speaking at MIT’s Real Estate Conference a few weeks back, and I saw a fantastic presentation by one of the professors leading the work on Internet of Things. A lot of the work revolves around sensors in buildings. They can monitor exit/entry flow and traffic in any part of the building. There are many additional tools that have been or are being developed that will help to portray the atmosphere and experience of actually being inside a building without setting foot in it.
Vermes: There is around $60 trillion worth of real estate in the United States, but analysts only have a finite amount of time. Through their ability to crunch data much faster than the human mind, big-data tools give analysts the ability to broaden their scope. For example, in the future, we may see investors use big data to analyze properties that are not currently for sale. While current time constraints dictate that time should be spent evaluating properties that are on the market, when time is less of a concern, investors may begin to also analyze other properties, ultimately approaching the owners of properties that may offer upside value.
Another way we may see big-data tools evolve is by more directly influencing decisions. Currently, big-data solutions are largely focused on aggregating and arranging data for human consumption. But people are more and more feeling inundated by information and do not simply need even more data, what they’re really seeking is answers. Derhake: The reason that we don’t track the effects of quality HVAC systems on rents is because nobody has that data. However, if you were to draw a pie chart on what tenants complain about, poor HVAC systems is likely to be a fat slice. Personally, I am being forced to relocate one of my offices for exactly that reason. What if we could tease these effects out of real estate? This type of effects would really explain some of the incongruent comps in the rental market. We should track things like HVAC quality, elevator speeds, energy efficiency, and Internet speeds and develop their statistical relationship with rents. Of course, big data is only valuable if it can be segmented and analyzed into actionable information. So, I think that technologies and programs that enable the smart and dynamic management of data will lead the revolution of big data in the real estate industry. On a property-management level, for example, we’ve seen a huge spike in demand for our SiteLynx program, which enables property data to be managed in a live, customizable format. Miller: We are still in the early stages of adoption. In traveling the world, I have seen different states of implementation of big data. For example, Schneider Electric, headquartered in Paris, France, monitors every person in its headquarters and uses real-time management systems. Japan seems to have the most-automated parking systems. At Google’s or Microsoft’s headquarters, everything is connected to the Internet, from fire extinguishers to security systems. We will see a huge gap from the most intensively managed buildings to the average buildings for some time yet, perhaps a decade or more, just as we see a huge gap from the most sustainable buildings to the average building out there. Conferences like www.realcomm.com, produced by Jim Young, help close the gap, but only a small percentage of professionals are trying to be leaders in terms of big-data utilization.
Tobin: The amount of data we already have access to on properties and loans is impressive. At some point in the near future, we will have “perfect” data on every single property and every loan in the United States. This trend is also taking hold in other countries and will eventually impact virtually every major city around the world, and then … everywhere.
In the United States, we take it for granted that one can go online and zoom in and see property photos of nearly every building or lot in the country. We will ultimately reach that point in many countries across the world. Clinton: We’re at the beginning of a wave of change that will permeate the business. Other fields are way ahead of us in effectively employing data, and the trend is that once an industry starts to become more data focused, they don’t pull back. There are nearly endless applications. From asset analysis and pricing on the investment side of the business to tracking consumer usage and traffic patterns in the retail sector, data will be a key way that smart companies compete.