The commercial real estate industry is in the midst of a technological transformation—and no part of the process has been left untouched.
Just think of all the new leasing and management systems you’ve seen, the listing and search services out there, the data and analytics tools that promise to change everything. Or take a look at this map from CB Insights, a venture capital and angel investment database, to get an idea of all the different platforms and applications that are changing the way CRE is transacted.
So what about due diligence? Is that process easier now, or just more complicated?
New technology can make due diligence harder to navigateOne of the biggest challenges buyers, sellers and investors face these days is finding their way through the maze of due diligence considerations amidst all this new technology. More and more the process is driven by data analytics, but it’s not always easy to tell what that data means or how to use it to your advantage.
It’s easy to get overwhelmed, but all this new technology and information can be a good thing. According to Maryland-based Macro Commercial Real Estate, the ability of technology to connect “stakeholders in property due diligence: environmental professionals, lenders, appraisers, corporations, law firms, insurance companies, government agencies and real estate professionals” is creating greater deal flow synergies.
Take Ten-X, which connects buyers and sellers worldwide, allowing them to search, list and transact properties online. In creating their platform, they understood that due diligence needed a high level of transparency, accuracy and efficiency in the gathering, analysis and presentation of the market intelligence surrounding the transaction. According to Gordon Smith, general manager of Ten-X’s commercial real estate division, brokers “rely on actionable and precise knowledge regarding their commercial package.” That’s why they decided “to partner in 2015 with global real estate solutions provider Situs.” It’s a perfect example of technology integration that will ultimately benefit brokers and the industry at large.
Technology keeping pace to support a global industry
While the speed and pace of due diligence has rapidly accelerated, the quality of the deliverables has also matched the trajectory. Brokers can now access information most relevant to their buyer or seller at any time, and can use technology to communicate that effectively.
Commercial real estate is also now a global enterprise. With players working in thousands of geographic markets, using technology to streamline the due diligence process is a necessity. The Ten-X platform helps that process, enabling deals that might not have happened a few years back.
The boom is just beginning
According to ESRI, a company providing a geographic and data information platform, the need for due diligence technology may be just beginning. “2015 was a record year for mergers and acquisitions (M&A). Totaling almost $4 trillion in spending, it spurred a large spike in real estate due diligence and research. 2016 looks to be another strong year in this space, and we are seeing a spike in the need for technology that will allow for advanced portfolio analytics.” Whether the industry is healthcare, hospitality or retail, there are significant assets in CRE that must be analyzed for their strategic valuation: ROI, cash flows, occupancy and cap rate compression relative to the transaction.
Digging deeper, 2015 saw a CRE-industry-specific M&A boom. “$79.3 billion total dollar volume across 34 deals” marked an environment in which REIT transactions flourished. According to ESRI, these deals depend on due diligence solutions. The “ESRI Platform-based M&A application allows REITs to merge large properties datasets in batch, and evaluate the potential aftermath.”
From new development and infill to REIT M&A, large-scale portfolio purchases, and middle market transactions, due diligence is crucial to closing a deal. As with other categories of CRE influenced by technology introduction, the due diligence process is benefiting from platforms and offerings that provide speed, flexibility and comprehensive analysis. This is a trend that will continue as transactions continue to spread geographically and increase in size and financial complexity.