Developing Winning AI strategies in Real Estate

With the upcoming Tokyo Olympics, regardless if you're athletically inclined or not, one can appreciate the sheer level of talent demonstrated across a variety of sports. From the rush and lull of baseball, the sudden splashes and flashes of surfing, or the intensely breathtaking breeze of archery, the bottom line is that the pro's make it look easy. However, this finesse comes at a cost: strict nutrition regimens, early morning strength and endurance training, and relentless dedication to perfection of their crafts day in and day out. These athletes get out what they put into their craft. All of the skill, sacrifice, and dedication becomes blatantly apparent on game day.

I am constantly completely baffled when executives demand so much out of technology, and even more of the much-hyped trend of artificial intelligence, and then become suddenly disillusioned that it "doesn't work," without putting in the requisite groundwork in order to support its success. This isn't necessarily without cause: real estate, especially on the landlord side, has been slower to adopt technology because historically, it hasn’t needed to. It has made trillions of dollars for decades, even centuries, without it. However, technology has become exponentially cheaper and quicker to develop than ever before, which means that the companies who are further along on their data journey, especially with AI are now building a distinct source of competitive advantage. The following discussion is meant to empower executives with the strategies to get started in realizing the benefits of AI.

Training for greatness

As in sports, the top performers with data (Moneyball, anyone?) reap the rewards of their efforts. Prior to COVID, Bain had discovered that companies using analytic insights to impact operations and improve goods and service were not only twice as likely to be in the top 25% of financial performance, there were also three times likely to execute decisions as planned and five times more likely to make decisions faster than their peers. A 2020Q3 study by Deloitte discovered that the frontrunners that completed more AI

investments and saw them through to full implementation were more likely to achieve significantly higher ROI's as compared to the "Starters" who lacked experience and maturity, consequently yielding lower ROI and payback periods.

With the pandemic accelerating trends that were already in motion, the choice is now clear for the real estate industry: either you make big changes starting today, or you keep on doing what you’re doing and run the risk of losing out on revenue from lower demand, eating costs others are minimizing, and having your competitors beat you in attracting

investors. But how does a real estate firm even start on a journey to leverage AI to its full extent? For any company, regardless of age or assets under management, there are three key steps in being able to realize the benefits of AI.

Step 1: Clean up your diet

Athletes start from a place of brutal honesty in assessing their current nutrition and exercise habits in order put into place improvements that will impact their performance. In real estate, we need to walk before we can run. To fully make use of AI or another other emerging technology, you have to go through a major data cleanup of any legacy database or transactional systems you have in place in order to move fast in being able to effectively evaluate newer technology that can benefit your firm. The truth is, many larger and established firms aren’t positioned in a way that lets them take advantage of new technology. People often underestimate the power of clean financial data since real estate financial data, while not necessarily large in volume, tends to be very complex. Are you still stuck mostly in Excel, consuming an inordinate amount of trees in order to function on a daily basis, or have to ask multiple people or look up multiple systems in order to find questions to seemingly simple answers? If the data you're consuming every day is dirty, difficult to process, or delayed, you may be due for a data cleanup. There are many experienced advisories who've worked specifically in your firm's area pf real estate that can assist with the migration and molding your data into a more usable format.

Step 2: Understand your team

Famous coach John Wooden summed it up nicely when he observed "I believe in the basics: attention to, and perfection of, tiny details that might be commonly overlooked. They may seem trivial, perhaps even laughable to those who don’t understand, but they aren’t. They are fundamental to your progress…They are the difference between champions and near champions." Oftentimes, real estate executives catch "shiny ball" syndrome and may go after the newest or most talked about trend without putting the right structures in place to support its success. This is where the people, process, technology (PPT) framework comes into play. These are the "basics" whose order of development must be taken seriously:

People. Real estate leaders need to understand what value their people (in each role and department) want to contribute to the firm.

Process. Then, they need to buckle down and learn what current processes are in place and either improve or replace them so they don't get in the way of the value their people want to bring. I cannot stress enough that leaders must reassess and update their understanding of traditional real estate roles. It's not just enough to know what each person does and how they do it, one must be able to justify why certain things are being done and question if they're even necessary any more.

Technology. Technology is ultimately the last layer, as a component to expedite the processes so value contributed by your people can be realized more quickly and effectively. Put technology first before the other basics, and you set up your firm for technical failure.

Step 3: Prioritize your goals

With the first two steps in place, there are lastly the main areas of technology to consider:

Replacement. In this area, you have already budgeted and made a case for why a technology is going to be purchased. Looking at alternatives, see how the options incorporate artificial intelligence or how they can set you up to start gathering and grouping the data you'll need to be able to build robust AI.

ROI. You may not have initially intended or budgeted for a certain technology, but be open to considering something if it has a demonstrable ROI. Be ruthless in understanding the details of case studies and white papers, ask for references and reference numbers, and conduct short pilots where ROI can be shown in a limited amount of time. Don't just choose something because of marketing buzz words; sometimes it's better to go with a product that doesn't have AI in it if it can show more time or cost savings than ones that do.

Tenant experience. This last category embodies technologies that were neither anticipated or show hard numbers, but maintain your competitiveness and contribute to the tenant experience. With consumerism trending strong in tenant choices and having this trend be emboldened by COVID, it has become even more imperative that real estate leaders purposefully design a thoughtful and seamless tenant experience to protect their operational revenue, in addition to the capital they're able to raise.

Peter Hinssen, a successful serial entrepreneur and thought leader in the area of disruptive technology, is the author of the book, The Day after Tomorrow: How to survive in times of radical innovation? He concisely captures the ethos of the technological landscape in describing four main categories of technology that companies inevitably spend their time on: yesterday tech (the tech to-do list that never gets done), today tech (the fires you are constantly trying to put out with your current tech stack), tomorrow tech (the stuff you want to start doing), and day after tomorrow tech (the fancy things everyone else seems to be talking about but few are actually doing). He stresses that the final category functions essentially like insurance--insurance against your own disruption. Digital transformation in real estate truly is a challenge--the industry is ten to fifteen years behind the technology the average financial services firm uses. However, with the tools and processes above, it is a challenge real estate firms can be prepared to confront.

Hazel Mann Principal Advisor Zetta Advisory