Not too long ago, there was a company reviewing an investment of a shopping center. The company was performing its due diligence on the property and mining through the numerous pages of the complex lease documents, but somehow missed an early termination clause in the anchor tenant’s lease. As the deal moved forward, the anchor tenant vacated the property instead of staying the remaining eight years the investor had assumed, and the entire investment tanked.
Stories like that aren’t as rare are you might think. If you are part of an investment firm, you raise money, pay dividends on that money and spend at least three to six months doing due diligence on deals you are interested in. Despite that, things can still fall through the cracks.
But there are many technologies available today that can help you avoid those kinds of pitfalls and protect your investment. Read on to learn about strategies you can use.
1. Streamline the process.
If you are the investor in the story above, reviewing lease documents can be tedious and time-consuming — but skimming and skipping important terms in those agreements is just not an option in today’s market. You, the investor, might miss whether you can comply with all restrictions or noncompetes that are mentioned in those documents. You might skim over questions around co-tenancy that need addressing, or maybe there are parking requirements contained in the leases that you miss. Or, like the company mentioned above, you might not notice when a certain tenant has a termination or purchase option or any other similar right that might affect the lease or the operation of the property.
While those pain points are valid, they are no longer necessary, as there are ways to streamline the process. A recent white paper by Navitas Capital says that artificial intelligence is no longer in its infancy: We are on the verge of AI disrupting both real estate and construction, which have been behind the curve of applying artificial intelligence relative to other industries.
Companies and investors who recognize those pain points and the power of artificial intelligence to improve their operations will have a competitive advantage — or at least greater protection of their asset. We are now able to produce AI software to do this. For instance, using AI, my firm can analyze legal documents and sift through millions of data points to confirm the validity of information so that investors identify patterns more easily and review and abstract documents quicker and more reliably so stories like those will no longer be the norm.
2. Improve efficiency.
While commercial real estate is an industry built on personal relationships and pen and paper, firms have slowly been more open to technology to help protect their assets, but only when that technology improves efficiency as opposed to being a gimmick. In the retail sector, for comparison, a study from JLL on shopping centers said that while shiny new technologies may seem like the right choice, investment in back-of-house technology that improves logistics, efficiency and inventory management may better serve customers because it facilitates a seamless shopping experience.
If you are an investor, there are many moldable, cloud-based software solutions that can drive deal flow more efficiently and effectively. And those types of tech tools don’t just store your data; they also put it to work for you. For example, Apto, which is just one of many in this category, streamlines the full life cycle of your deals from prospect to close and ensures that no details fall through the cracks.
3. Use automation.
While the human factor is still there in CRE, automation is key, and there are many tools available today that can automate investment.
Let’s examine a case study: A New York-based investment firm managed approximately 1,200-plus investor positions across 30-plus investments a few years back, but as its investor base grew, the company’s administrative burden of delivering personalized reporting was difficult to manage. The firm VP at the time said that if you were an investor in 10 deals, you would get about 20 emails from them each quarter. Investors would respond with questions and such, and the back and forth would take a huge amount of time. As a solution, the company invested in back-office automation and now reports that its accounting and quarterly reporting process is much quicker, loading in data and generating systemwide reports can be completed in a few hours instead of days. Fundraising is more systematic and productive, and sensitive data is protected.
In the end, there are many elements investors need to be aware of when entering into any real estate deal, and now we have the technology needed to make the process more efficient and streamlined. Overall, incorporating tech tools can help to truly transform the process and protect your asset.
