IT lag identified in CRE investment reporting

Friday, October 16, 2015

Software providers and advisory services calling for heightened real estate industry investment in information technology (IT) aren’t entirely self serving. The argument is backed with findings from a recent survey of 320 senior corporate real estate (CRE) executives worldwide who revealed a lag in financial reporting and data management spending compared to other kinds of technology.

It’s estimated the corporate real estate industry invested U.S. $59.3 billion, globally, in building automation systems in 2014 versus $1.2 billion in IT software systems. Corporate real estate also trails other sectors in the percentage of its revenue spent on IT — at 3 per cent, compared to 4.3 per cent in the manufacturing and resources sector or 5.7 per cent in the financial services industry.

The new report, Future-Proofing the CRE Industry: Is Commercial Real Estate’s Innovation Curve Moving Fast Enough?, from Altus Group and ARGUS Software emphasizes real estate’s growing stature as an asset class, but suggests CRE investment reporting and analysis capabilities aren’t keeping pace. In particular, the report critiques the industry’s still significant reliance on spreadsheets and the prevalence of so-called data silos — i.e. single-purpose software that complicates the aggregation of multiple sources of data. About 30 per cent of survey respondents use spreadsheets, while only about one quarter have implemented integrated suites of software for cross-functional numbers crunching.

“Potentially U.S. $11-trillion of assets are being managed in manual spreadsheets with all their inherent risks of human error and inefficiencies,” the report contends. “This unconnected approach to managing data makes it harder to generate top-level oversight of the business in a timely fashion. It can take weeks or months rather than hours or minutes to aggregate the data, apply the sensitivity analysis and re-forecast the returns, by which time the situation has already changed.”

Many of the survey respondents acknowledge they are not adequately taking advantage of technological innovation and confirm future plans to invest in better exploiting big data. While voicing concerns about data quality and regulatory requirements that currently pose obstacles, they also admit a lack of tools to capture and analyze multiple, interrelated streams of data.

This is occurring in the context of institutional investors’ growing appetite for real estate. Alternative asset classes, in which real estate figures prominently, once typically accounted for about 5 per cent of any given institutional investment portfolio. Today, it is  closer to a 10 cent portion, and the Altus/ARGUS report cites a PricewaterhouseCoopers projection that real estate allocations could one day be in the 20 per cent range.

In tandem, requirements for internal and external reporting have escalated. The report tallies investors’ demands for more frequent and detailed reports in consistent formats that can be attained using mobile devices. The ability to benchmark and compare asset performance is becoming increasingly critical.

“Investors raised on a diet of instant access to information on their investments in shares, bonds and equities have little appetite for manual spreadsheet-based calculations and forecasting which require significant manpower to make updates on the latest rates, rents or cap rates,” the Altus/ARGUS report asserts.

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