From Privacy Risk to Owner Control: What CRE Owners Need to Know About Building Data

Drew Hall: Value Creation Nation

Drew Hall: Welcome back to the Peak Property Performance Podcast. I am your co-host, Drew Hall, and today we are going to be talking about the following. It's going to be a little bit of a mouthful here, but it's going to be a good topic. From privacy risk to owner control, what CRE owners need to know before they sign away their building data. I told you it'd be a mouthful. So first, Bill, welcome. How's it going?

Bill Douglas: It's going great. And I'm really looking forward to this topic because I get asked all the time, what do you mean data? We own our data. And when we published the book, people laughed at us because they thought they did. And we've just been spending a couple of years clarifying it. So now we have an expert to talk about it today.

Drew Hall: Yeah. All right. Well, before we do introduce our expert here that we'll be interviewing, let me just quickly remind our listeners to like, share, subscribe, hit the bell, do everything. If it's a button, press it. This is how we are spreading the word on the PPP movement and ultimately changing an industry. That's really what we're here to do, make it better. There's so many aspects about what we talk about in and out of these podcasts that there's so much opportunity. So it's pretty exciting, these conversations, and that includes today.

Drew Hall: And if you think as you watch along, as you listen along, as you, if you think that you would provide value as a guest here, or you know someone who would, we welcome commercial real estate thought leaders from all stages of ownership and operation. Just reach out to us. And the best way to do that is peakpropertyperformance.com. All of our information is there. We'd love to hear from you. So yeah, Bill, take it away.

Bill Douglas: All right. Today our guest is Derek Neathery. Derek, say hello and tell everybody where you're hailing from before I read your intro.

Derek Neathery: Hi all. I'm Derek and I'm in Chicago right now, downtown actually, if you can see what's behind me.

Bill Douglas: Okay. I thought that's what the building was behind you. Derek is a partner at Quarles and Brady LLP, where he represents owners and institutional investors in commercial real estate matters. Including management agreements, joint ventures, and increasingly the data privacy questions that show up inside of these documents. So Derek's not coming here as a technology vendor. He's not coming here as an operator. He deals with what CRE owners sign, what vendors control, and what institutional clients worry about when building systems start collecting or touching data. So again, Derek, welcome to Peak Property Performance.

Bill Douglas: And before we get into any questions, I just want to give you the floor to explain What data is being collected in commercial real estate? Put some context around it, and then we'll... that'll set the stage for our talking points.

Derek Neathery: Certainly. And thanks for having me, guys. And I just want to make one small disclaimer that these are my opinions. These are not the opinions of my... of a firm. And my background is real estate and real estate transactions. There are people whose sole focus is data privacy. And I have acted really as a bridge between, as Bill described, the actual owners and operators of commercial real estate and then how it intersects with data. It's a massive field.

Derek Neathery: So in the real estate context, the data that buildings generate is prodigious, and it comes up in a lot of contexts that a lot of people maybe aren't focusing on. There's, there's the obvious stuff of the financial reports and those sorts of things, but everything that is automated within a building system is producing data. And every single piece of software that manages that data or that data flows through, and any consultants that are reviewing that data to help you improve performance, or, you know, a sustainability consultant, for example, who has access to that data to review that data is touching it and they have agreements and those agreements may get signed without really understanding what those agreements say. And sometimes those agreements grant broad rights to the other party to use that data, to store that data, to manipulate that data, to aggregate that data with other data from other clients and use it for whatever purposes they want, including monetizing purposes. And so I think really what this conversation was going to go to was really talking about how these legal agreements that you sign that are dense and difficult to read and understand may actually be given away a lot more than probably be aware of.

Drew Hall: Well, is there a place where you're most often seeing these data privacy issues or potential issues, I guess, you know, property management agreements, joint venture agreements, or certainly vendor contracts themselves? Is there like a top?

Derek Neathery: The main places I'm seeing them, uh, you know, I think it really starts with your property manager. You know, your third-party property manager is the one present and, and running the building. And they may be running it with software that you've determined or asked them to use, but more often, as often as not, Perhaps a property manager is outsourcing those, those service relationships and sourcing the software, or for property management companies that are more significant, they may be bringing their own platform to you. And that platform has all their own vendor agreements, sort of enterprise-level arrangements that they've reached with, with companies that they use at every single property that they manage. And so the property managers really, they're the ones who see all the data that is generated by a property. And so the property management agreement is really sort of At least with what my clients have been doing is that, that's where I'm most encountering these issues. But I also have clients who, who, as I said earlier, you know, like retain a sustainability consultant and that sustainability consultant's going to look at their building performance across a portfolio and they're granted access to the data. And that agreement has provisions about what can be done with that performance data.

Derek Neathery: And then another place where we see it is you wouldn't even necessarily think about it, but sort of like a purchase contract. You know, we had a property down in Florida. It was a residential community and they're going to upgrade all the handsets, the door locks to open the doors to afford keyless entry. And the handsets are a piece of equipment. And I think that that's what the client was most focused on. And, you know, you wave a little fob or whatever and you can get in. And, but the contract was mostly about the data that was generated by the use of those handsets. And it ended up being kind of a multi-month thing to negotiate and get through because, you know, we were going to talk about this, but, you know, the entry and exit from the doors of people's homes is a piece of data that I don't know that everybody's necessarily focused on, but certainly some people are and some people are extremely sensitive to that, that they don't want their landlord keeping track of their coming and going.

Derek Neathery: And, you know, I think the landlord maybe looks at this type of thing as, well, yeah, but it's easier than having a bunch of keys in a box, you know, and then, and then making copies of keys and rekeying doors when somebody moves out. They don't turn in the keys. You know, the electronic locks make a ton of sense from an operational standpoint, but in the background, a computer is recording 100% of what happens on that handset. And then so the question becomes, what happens to that? And the contract spells out what happens to that. And, you know, every vendor is different, but the contract may well say that the manufacturer or the software designer or whoever's running the operating system that operates that lock system, that all that data goes back to the home office and they can do whatever they want with it. And you fully release them from any claims arising from that data or misuse of that data or breach, you know, a security breach. And then that data is compromised and is used for nefarious purposes. You have no recourse against them, at least in the written words of the contract.

Derek Neathery: And I think, you know, when you sort of dig into this legal language and it's dense, often small print, pre-printed form kind of looks like you can't change it. When you start digging into that language and start pushing back, you know, we have found some vendors say, well, no, no, no, no, no, that's not what we do. You know, and sort of your sales rep saying, we don't harvest this stuff. You know, your data is your data. We're not in the business of monetizing. We don't do that. And I think companies are actually honest about that. I don't, I mean, it suggests that the, that the rep is lying to their clients.

Derek Neathery: It's just that the legal document allows tremendous amount of latitude for the use of that data. And all you need is a change in corporate policy in the future that is controlled not by that sales rep who sold you these handsets 2 years ago, or a company's acquired and the buyer of that company has a different vision about that data, where suddenly after years and years of data, people step back and say, hey, there's some value in this data. Can we use it? And they said, well, let's look at our service agreements. Let's see what we can do. And, you know, lo and behold, these standard form contracts typically, you know, not, not all of them, you know, you got to read each one, but typically they're going to afford the service provider maximum flexibility to do whatever they want with the data and to protect themselves in a very one-sided way. So that's where we come in, or sort of as I, as sort of an owner's representative, come in and change that. But that's expensive and time-consuming and it requires attention. And, you know, it's a, there's a cost to it, I guess, to, to, to solve it.

Drew Hall: Yeah, it makes sense. It makes sense. It would take a lot of scrutiny, a lot of time, therefore probably a decent budget.

Derek Neathery: But what I think people don't necessarily think about is that these service providers are unwilling to negotiate. That I think is a perception that we are frequently pushing back against, you know, because I actually think that when you raise decent points, typically reasonable parties who are, who are just in a business, they just want to sell the handsets, just get them installed, you know, and move on to the next customer. You can, you can typically get some, some headway on that. So, so sorry, go ahead.

Drew Hall: Oh, no, no, you're good. Don't let me interrupt. Keep, yeah, roll on. Because I mean, it's interesting because I've got, I've got a couple of questions here for you and you're, you're kind of pushing through them, honestly. I mean, uh, You know, let me blend a couple of things here because you've, you've talked about sort of the, I don't know if I'd say the disconnect, but definitely the difference between what a, what a salesperson might say about the product that they're, I hate to say pushing because it's being accepted, but about the, the product that's being sold into the facility and how that can be different from what's actually oper... you know, what's operationally happening today could change in the future, like you said, depending on how things are going with the product line, et cetera, et cetera. But in terms of like the actual agreement itself, you talked about, you know, the ability to kind of press into that. What should owners be looking for in those agreements around the use and the sharing, the retention, liability, all those things? Like, is the language formalizing? Is there more teeth in that language these days than there has been historically?

Derek Neathery: Yeah, I definitely, I mean, data privacy is a field. It's its whole thing. There are people whose entire careers have been focused on data privacy. And a lot of that grew out of software. And then with the development of kind of the Internet of Things and then the interconnectedness of things. You know, now that you can start your laundry machine, turn on your oven, you know, you can do all these things from your phone. It has now, and so there's data generated. Every on-off toggle is a bit of data.

Derek Neathery: That data, and then, and now with storage being basically infinite, you know, we're not going to, we're not going to run out of space to store things. The default has been save everything and hold onto it forever. And the view would be just sort of what can we use? So the things to think about would be. What types of data are collected? How is data defined? That definition is often dense, but from a practical standpoint, really broad. Essentially any data generated by the device, any data inputted into the device, you know, there's sort of so many different varieties. I mean, just because of how varied you can, you know, make things with software and hardware. And so then once you have this sort of the scope of what data is being collected, then you understand how it's used. And these service providers have legitimate use for reviewing the data, just to, to, to iron out software bugs, to run updates.

Derek Neathery: I mean, there's a certain amount of just, they need access to this data and, and some ability to use this data just to keep the product operating the way it was intended to operate. Right. So the issue then becomes, what about third parties, affiliates? Can use leave the house of the company, you know, or the company and its affiliates? There's sort of, I think, maybe a default to think about, well, I own this data. It's my data. So that there's sort of this inherent, well, then you'd have to come and ask me how you want to use my data, sort of like it's my Lego set. You're coming over to play, you know, it's sort of not, unfortunately with these, these pre-printed contracts, what they say is you've sort of already given it away. So even though you may, as the building owner, may still own the data, the contract may have granted broad rights to the holder of the data to use it in a variety of ways that you wouldn't maybe otherwise want to agree to.

Drew Hall: Yeah. Yeah. So instead of like a playmate, it's more like a leech or a tick.

Derek Neathery: Yeah. Yeah. That, that already has your Legos, like it already has them, you know? Yeah. Yeah. Now, unfortunately it's not, you know, in real estate, right? There's only one building. We possess it. Right. And, and say with Legos, I mean, unfortunately what we have is an intangible thing that can, that can be copied infinitely.

Derek Neathery: Right. So they've got a copy. You've got a copy.

Bill Douglas: Yeah.

Derek Neathery: You own it, but really, do you own it? You know, and, and, you know, I think music streaming is sort of a good analogy in the sense that we, you know, every time I play a song on my streaming service, I'm licensing it and the license is to listen to it privately, not play it for sale or, you know, profit purposes, but I don't own it. You know, the artists maybe still own something residual, but we're just sharing. And because copies are infinite and storage is infinite, I think maybe a better way to think about these sort of data provisions is that they permit infinite sharing or could. So the standard agreement, if you get kind of, again, these things are always any specific circumstance, who knows? But what I would expect to see is data is defined very broadly. Use is the permitted use of that data is also defined broadly and that there's no sort of backend time on it that they can just use it forever for as long as they think it's useful. And I think as datasets have become massive, you know, sort of in the last 2 decades, if we just aggregated all this data in a global sense, you know, data that didn't seem to have value 10 years ago is like, oh, well, you got some value now, you know, and what AI is able to transform. So even if it doesn't seem useful today, I think companies understand that maybe we'll figure something out with it later. So it becomes this kind of raw material that they can mine in the future. So

Bill Douglas: they're just accumulating the asset, wondering what to do with it, right?

Drew Hall: Yeah.

Bill Douglas: Accumulate like an asset, right?

Derek Neathery: Yeah, we don't know if there's use in this. So there may be an intended use, but the use permission in a contract is going to be very broad because there could be some future use that no one's thought of yet.

Derek Neathery: Great.

Bill Douglas: We started out with data and the show is all about data and digital infrastructure. So we're not to get away from data, but can we shift a little bit and talk about the digital infrastructure side, particularly the hidden cost of vendor-controlled networks, right? Why should CRE owners be cautious about signing away control of building connectivity and other core network infrastructure? Is it because of the data or is it because of other Exposure, loss of something.

Derek Neathery: So I think I was almost saying the infrastructure is seemingly easier because it's a tangible thing that exists that creates practical problems if you don't own it. But I would say that's almost something you guys understand better.

Bill Douglas: Well, take a typical connectivity agreement from an ISP. Like they're going to come in, like give you the network, give you the network, right? Well, they're not going to charge you for it. What is an owner giving up in return for taking on such a bulk agreement?

Derek Neathery: So those bulk agreements, when I've encountered those, the bulk service agreements, like somebody's building an apartment building and now it's like client calls, hey, I got to get this thing wired. And it turns out there's one game in town. Oh, really? And it's, you know, name your massive technology, you know, one of the bigs, telecom provider, often with some maybe negative epithets added to it if you don't like it. But in any event, right.

Bill Douglas: With great support, of course. Great support.

Derek Neathery: Massive telecom provider. Has basically a de facto monopoly in a particular market and they offer you this deal and says, well, wire your building for free. You know, we'll bring in, we even, you know, if you want to upgrade, we'll bring in the fiber and then we'll wire your building and then you're set. Just sign here. And it's a short thing, short contract in terms of number of pages. And oftentimes it's a 10-year term easily so that the building is just given away. And oftentimes those, those, those contracts are exclusives so that if the monopoly, the, you know, the pseudo monopolies, they're not actual monopolies, But, you know, there's a huge amount of infrastructure that goes into running telecom. So, but that has, that world has changed, right? And as new operators move into a market, your agreement may well prohibit you from bringing in another operator.

Derek Neathery: That would be sort of the worst case that you're signing an exclusive deal for the next 10 years. And because those wires are through your entire building, like if it's, if it's a residential building, they literally in every unit, they're in all the walls. It's a significant upfront expense and that the telecom provider, and I think it's fair, they'll say, look, I'm making a big investment in your building. So the quid pro quo is I get full access to your building. Not even just that I get full access, is you, landlord, are going to make sure that I can get in there when I need to or when I want to. You can't touch my wires ever. Sometimes if it's a very, you know, problematic, sometimes they'll just say even the riser space, I control that. You can't put anything else in your risers.

Derek Neathery: And so it just, it becomes like you've got, I don't know, a good analogy for it. But you've invited someone into your building and they're going to stay for a long time and they get broad rights to do what they want and you don't really have any right to get out of them. And these telecom agreements, we've also encountered them in like a transaction. So I got a client buying a building and as we're doing due diligence, we read these contracts and say, oh, that agreement. Yeah, that's a problem. Get rid of that. And the owner says, well, I can't. It's not terminable.

Derek Neathery: Yeah, well, we don't want it. And this is a major minus. This decreases the value of your asset. Like, fine, if you won't get rid of it, I'm going to take off X hundred thousand dollars on my purchase price or what have you. And then suddenly, you know, the owner of the building, the seller gets motivated and starts the dialogue with the telecom to terminate. And those termination fees are, you know, I've only had anecdotal kind of experience with that, but I think it's substantial. It's prohibitively expensive. And then not only, even if you can get an agreement to terminate the agreement, the underlying thing, then the telecom says, well, I get to come in to remove it all, or you have to remove it at your expense, like all the wires and all the infrastructure.

Derek Neathery: Hopefully it's, you know, old enough or whatever, obsolete enough or close enough to obsolescence that they don't care. That's the other risk is that like you don't even own the wires. And so that's somebody else's property and you've probably got minimal rights to do with it what you please with those wires, you know? So,

Bill Douglas: But the fact that you can't touch it makes me, if I own a building, makes me have to go put in another network to use the handsets you just described. I can't use the network that's there, even though I gave up the rights to it. And I might get a little bit of money for it, but I can't use it. So now I got to go put in another one right next to it.

Derek Neathery: Right. Well, and that's, and thankfully with the advent of quality, high quality wireless technology, that I think has sort of been a bit of an end run with the wired buildings. You know, I guess that's probably a more antiquated concept, but yeah, you're just layering on this, this, this thing and on top of this thing, you're not, it's not an integrated network. And I know that's your guys' specialty. So I'll let you speak on that. But the contracts, those are a nightmare contract. They're terrible. Don't sign them would be sort of the initial advice to the client is like, well, do you have any other choice? And clearly

Bill Douglas: you always have a choice, but I've heard you mention, Derek, a contract of adhesion. Could you explain what that term means?

Derek Neathery: A contract of adhesion is legalese. That is, it's essentially, I mean, it can mean different things the way I use it or the way it's commonly used means It's a very one-sided agreement where all the rights are in favor of one party, the obligations are on the other party. And, you know, so one party is sort of grossly advantaged and the other one's grossly disadvantaged under the terms of that contract. And it is in a context where you have no choice. And so, you know, it's sort of like, and this is a live issue, is that you buy a piece of hardware, but it requires software to run it. To make that hardware do something, well, you have a you have to agree to that's you know I don't know put that in quotes. You are actually legally bound when you agree to the software license to run your your piece of equipment that you bought that you theoretically own, and and so some characterize those software agreements as contracts of adhesion because you have no right to negotiate them. You can't change them, and the the handset to talk about that example again is obsolete without the software.

Derek Neathery: And so, and so the adhesion part is there's a sort of a coercive element that you don't have another choice, that if you want to use the handset that you own, you have to agree to the software license. And so, so that's, that's why people hate lawyers.

Bill Douglas: It's the subscription economy being turned against you.

Derek Neathery: Yes.

Derek Neathery: Yeah.

Derek Neathery: Yes. And so, so that's where, you know, I think larger, like the institutional clients have the scale. They've got tens of thousands of users. You know, they've got portfolios of assets so that when they roll out sort of a big capital improvement in a particular asset, they can, you know, reach out to the counsel for the provider, if it's the handsets or whatever, and say, okay, yeah, we're changing this. You know, we're fixing, we're modifying these basic terms. And so the data generated by this handset, notwithstanding your software license agreement, what the data is, you know, As between us, it's my data. You can't, you know, you can only use it for, you know, reasonable, necessary software improvements. And, you know, there's, there is a reasonable use of the data. It's just that it needs to be cut off.

Derek Neathery: And then you address all the issues like, well, what happens when we throw away those handsets? What happens to that data? Do you have to delete it? Is it still mine? You know?

Drew Hall: Well, let's think about that line. You know, obviously you need the data in order for it to be useful in things like building telemetry. Absolutely. And then over here, on the other hand, you've got tenant data. Mandatory, optional, et cetera, et cetera, as we've said, continues to kind of get more potentially valuable as time goes on. So this, this idea that it kind of starts as a business decision rather than a legal decision upfront, right? And outside counsel is more effective when the owner has already decided how they want to approach this issue, like how to handle these varying interests, I guess. So as that outside counsel, what, what do you like to see or what do you need the owner to decide before you can help them or you can properly document their desired approach?

Derek Neathery: I would, I would just say you shouldn't be going to your lawyer for technical advice, you know, and, and so, and, you know, it's people, we're always learning and people learn in different spheres and the lawyers can teach you a lot. However, I think that's the ideal is that a client knows what they're doing. Client is in the course of planning a project, whether it's, you know, retrofitting a building or even ground-up construction that they've been kind of keeping an eye on, on how are we going to do the building automation systems and what are we doing with the, with the internal network? And that just as they've hired designers to kind of fit out the floor plan and if it's residential unit finishes, you know, all that detail, the network planning should be right alongside that. You know, it should be, it should be that early. So you figure take 2 years to design a building. You know, at some point early in that design, you've got schematics of kind of like what's the floor plate look like, you know, and all that. So I think that the network design can go in. And so for outside counsel, the most efficient use, of course, is a client who knows what they want, kind of knows what they're doing upfront and has done some planning in advance.

Derek Neathery: And then they can approach the service contracts with, with a more clear direction.

Drew Hall: Yeah, I love the way you're explaining that, Derek, because it, you know, we often make a comparison to something like something physical that you can see that has a component of it that you can't, right? Which is HVAC. You can see the steel structures, especially those large exposed builds. But those are just a means to an end, right? They're moving air. And so you, there's a whole system behind it and a whole professional team behind it. So we often make that comparison, like you need, you need there to be a professional design behind it or else you are not going to be able to stay in that building physically. That's a lot easier to see, but even see the non-tangibles in that airflow than something like this data where you have systems that are generating this data that are important. It's just harder to see it or envision it if you're not really thinking about it. So I like the way you're positioning that.

Drew Hall: That's, that sounds good. I'm curious, like, is it actually easier to negotiate these agreements that you're talking about when the owner has, you know, already defined what data is operationally necessary versus what they don't want collected?

Derek Neathery: Yeah, absolutely. I mean, I think, I mean, there's always, when you really get into the weeds and the details, there's a lot of things to figure out and talk through and decide. But I think that if there's upfront understanding on the business side, of what they own, what they're generating, you know, in terms of what types of data will be generated and where it's flowing and what sort of software they're going to need to run it and manage it and whatnot, then it becomes a lot easier to pare back the definition of data, to pare back the paragraph that says, here's how X service provider may use said data. You know, so, so, so when we understand what's actually at play in a particular project, it becomes a lot easier to draft around it and

Bill Douglas: I was on an industry panel on Tuesday, industry conference.

Bill Douglas: The moderator at the end said, if you could tell the audience of commercial real estate owners today one thing they could take home tomorrow, I kind of shot from the hip and I said, I would ask every vendor tomorrow in your building, if I replaced you, what do I keep? And the guy pressed on me and he said, what are you pushing at? And I said, well, I don't really know what I own and I don't own. So if I replaced you, not that I'm going to go terminate you, but do I own the sensors? Do I own the handsets? Do I own the data? Do I own the network? Do I own the wiring? Like, if I do own the data, what do you do with it? All those questions should be documented in writing instead of just transferred by the salesperson, which you obviously trust, but the salesperson moves on. So it was, it was an interesting, I don't know if it's valid from your perspective, from a legal perspective, that's hard to do, but I thought I would share it with the audience because it's, it's a talking point to at least start to know what I own and don't own. And maybe I do need to talk about this agreement the next time it comes up. But question, that was a long intro, man. But the question really is, what should owners and investors do now to turn a building from vendor-controlled expense, right? On my P&L, it's just something I pay for, that network charge or whatever, into a controllable operating asset that does add value when you trade the building.

Derek Neathery: So what you're going to have to do is get all your agreements that you're already bound to, and you have to look at those agreements and understand what you were just talking about. It's like, okay, I terminate this vendor. What do I keep? What copies can I retain? And then sort of, you know, worst case scenario, if I have to start over, you know, what does that mean for my business, you know, for running the asset? And so to convert it kind of in some ways could be as simple as, well, you see what contracts you can terminate and figure out which contracts you can't. And so you just have to write out the term, you know, and you can make an assessment about your current situation. So you start at point A, that's your current situation, how we get to point B. And I think while you're working on getting out of those contracts or figuring out a stage, you know, a sequenced process to do that, you work on your plan for getting to point B. And I know that's what you guys do and others. So, you know, but it's really, you know, it becomes kind of an assessment, assessment, see what the lay of the land is, and then we plan around it and work from there.

Bill Douglas: Well, you brought up assessment and Drew, dive in if you want, but I am often astonished how we get approached by a group that bought a property And they, of course, they reviewed it and they did physical inspections and they walked it and they looked, you know, they had engineers look at the structure and the mechanical and all that data and digital, especially the infrastructure part of that, were never part of the diligence. Why is that?

Derek Neathery: I think it's because this is still new, you know, and it's not that new that we're, that we as a human race are generating terabytes of data every single day, you know, but I think our world operationally, and I know this is a big thrust of your book, particularly with commercial real estate, maybe especially with commercial real estate, is that we're catching up. We're catching up to this new reality. And so there isn't a great playbook out there, you know, because like right now, people, an apartment building goes on the market or even an office building goes on the market, kind of an agreed upon thing of like, well, you look at the rent, you know, you look at the gross income, look at the expenses, you come up with a net income, you can put a cap rate on it, you leverage it with some debt. That's how I I determine the value of this asset. Like everybody kind of agrees that's how you more or less at a real high level value an asset. And we don't have that kind of industry-wide consensus yet with data. And I think that part of the fact was, Drew, your point earlier, it's intangible. You can't see it.

Derek Neathery: It's also unlike any other product because it just multiplies. Like it's, you can copy it infinitely. But I think as buildings have become more modern, It just hasn't made its way through the industry. So we don't have norms so that when you get to due diligence, you know, you've got norms, right? Like in the '80s, people were freaked out about environmental contamination because that was coming in the wake of the adoption of CERCLA and other laws about environmental liability for environmental contamination. Now it's standard course. Everybody gets an environmental report before you buy a property. Every bank gets an environmental report before they make a loan on a property and nobody's freaking out about it. And people did freak out about it 20 years ago, environmental risk was still a very big thing.

Derek Neathery: And now it's managed because we've all just been doing it for so long. And I believe that, that this data management, like the management of data issues, will find a way toward a kind of industry consensus or a range of consensus. We're way at the front. I mean, still at the front of that, rightly or wrongly, I think as an industry, we're still very much at the forefront of that. And so you've got a lot of folks who just don't know. And just as I'm sure back in the '80s, people were like, environmental report, that sounds expensive and stupid. I'm not doing it. it.

Derek Neathery: You know, nowadays it's malpractice not to, you know, tell you, you know, it's sort of not to get one.

Drew Hall: Yeah.

Bill Douglas: This was one of the main points we, this is one of the main points we wrote the playbook and didn't make it a technical book. We just made very straightforward, do this and learn that. And then you can make a decision. It's the problem unaware audience. The size of the problem unaware audience in commercial real estate always baffles me. And, you know, problem aware, I can go solve problem unaware. I'm good. I don't need any So it's, it's the latter one that we run into a lot still.

Derek Neathery: Well, we, we, we learn from each other. We love to be in a pack, you know, we love the safety of what other people are doing. And if everybody's doing it, we'll all do it. Nobody's doing it. That's a little strange. Maybe it's a waste of money. Maybe it's a waste of time. So I think it's more of a, this is, they're all important issues.

Derek Neathery: And I think that these are important issues that we're just going to continue to have to grapple with. with that it will, it will become more normalized. But until it's normalized, you're, you're ahead of the pack and that means you're not in the pack. So,

Drew Hall: so. Yeah. Let's, let's say right now, right now there's some owner sitting at a desk and a vendor agreement is being placed on the desk. Uh, let's just say it's some salesperson spins and just goes to exit. I'll be back for that signature. What are the top questions that should pop right out of that owner's mouth just right away as they think about this

Drew Hall: top

Derek Neathery: What data are you collecting?

Derek Neathery: What are your rights to use it? Do I retain ownership of it or do you have ownership of it? By the way, even though it's coming out of your building, if the service provider owns the data, you may not have a right to use it unless the contract gives you a right back. So it's sort of like a, they're going to take your data, they own it, and then they give you a right to use it. That's the most sort of offensive arrangement.

Drew Hall: Wow.

Derek Neathery: I think, I think understanding what data is being collected, who's got the rights to use it. Who owns it? If it's sensitive, you know, I think data involving actual live human beings as opposed to what was the average daily temperature on the 33rd floor entry data.

Bill Douglas: We call that PII, right? Personally identified information. Yeah. We go work really hard to avoid that.

Derek Neathery: Yeah. Well, right. If you're trending into that territory, I mean, you got state privacy laws. Every state's a little bit different. California is kind of out at the forefront of that. So you got to be just careful. And so, so again, what data is being collected? Who owns it? How's it being used? How's it being secured? You know, I think the PII is a bigger security issue because everything gets, you know, not everything, but breaches are common enough that an event that we can anticipate. And so then,

Bill Douglas: And ask who's responsible if it's compromised.

Derek Neathery: Exactly. So if sensitive data is compromised, who's responsible for it? Are you protected? Are they, you know, so that's kind of where it starts. And I think, and then, and then when this relationship The term of this relationship ends, what happens to the data? Do I get to... does it stay my property? Do I get to keep it? Are you going to give me a download of it? You know, and then do you get to keep it? Do you get to continue to use it? How does that all work? So you really have to think about the entire length of the relationship and sort of each incremental step that can happen from start to finish.

Drew Hall: Okay. Well, now for the ultimate shift, Derek, everything so far has been about industry experience, case studies, You know, let's shift. And we always do this at the end of each of our podcasts where we have guests on, and we just call this the extra floor in the spirit of commercial real estate. And these questions are just designed to hear a little bit about you, the individual. So these are just, you know, gut-level responses. No wrong answers, of course, but just 3 quick questions. Number 1, what would you say is a good piece of career or life advice that you've received?

Derek Neathery: You get the clients you deserve was something that one of my mentors always told me. And, and it, you know, as a lawyer, we're a service profession, 100% service. So we think about this. And what he meant by that was if, if you're being crazy and you're up at 4:00 AM responding to emails, you'll get clients who will send emails and expect responses at 4:00 AM. And I think to sort of translate this out of the legal world, I think you get the clients you deserve in the sense that your behavior will modulate the behavior of whoever you're dealing with. Not always.

Derek Neathery: But in general, you know, the people you surround yourself with and kind of what your style is, you're going to find like-minded folks. Being true to your style is going to make for a more fulfilling career, you know, whatever you do, because you'll be around people that you sort of work well with. And that's not to say there isn't a huge range of styles and behaviors and, you know, people find their own way, but I'll go with that one.

Bill Douglas: I love that. I think that applies in life as a whole.

Derek Neathery: Truly. Yeah.

Derek Neathery: Yeah. Get the friends you deserve, you know?

Bill Douglas: Yeah. I say to my sons often, show me your friends and I'll show you your future.

Drew Hall: Absolutely

Derek Neathery: right.

Derek Neathery: Yeah.

Bill Douglas: I've never heard it flipped around in a client perspective. So Derek, what's one habit or practice that consistently makes you more effective?

Derek Neathery: Oh man, it's efficiency. Here's another thing I was told, just do one thing at a time. That was a, you know, I was an associate at a very large law firm, which was a very demanding environment. Not to say that being in a small law firm isn't always a demanding environment. It can be a very demanding job. Any service profession, demanding job. And you often have demands coming from lots of directions and a lot of things with varying levels of urgency, but all urgent. And you have a desk full of this and it's easy to freak out.

Derek Neathery: And so the piece of advice I got was like, you can only do one thing at a time. You have to pick one and just do it and get it done and then move on to the next thing. Trying to do, and it's a lot easier said than done, and it's not sort of a knock on multitasking, but I think the point is, is that if you're going to do something, put the focus in and get it done. So that's personally what has worked for me. But weirdly, I find if I just do one thing at a time and push it through to completion, and then I turn to what has backed up and I started knocking out my inbox or whatever, that seems to be... I seem to work well for me.

Drew Hall: Yeah, that's great. I feel like that's a beautiful description of like yielding to the myth of multitasking.

Derek Neathery: Yeah. Well, and I bill by the hour. And so when you're focused on something and you're concentrating on something, and then you break that focus and go do something else, it's sort of like the train is slowing down, you know, and the train is heavy and it takes a lot of steam to get it going. And so if you start interfering with your, your inertia, it almost takes more energy to get back up to the speed that you were at when you were still engaged. Don't break stride, you know, just, just keep going. Just finish it and just be a little bit late on responding to that email or late. 'Cause it's like, that's the other thing with urgency. A lot of that we just put on ourselves.

Drew Hall: Okay. Third and final here. Do you consider yourself an early bird or a night owl? And has that changed?

Derek Neathery: So I'm an early bird and that has not changed. I was a morning person and, uh, like in law school and, and I still am today. And it was kind of a, I found myself in a work environment with a bunch of other people who were in the office at 7:00 AM. And now that I've had children, I'm in a little bit later, but I'm still usually in by 7:30 and that works. Now it makes it harder for, you know, for the folks that are late, obviously late workers, because then they're emailing at 11:00 AM and then I'm back at it at 7:30 and we keep things moving. But yes, I'm an early bird. Our joke was whenever I get on the phone call with people in time zones out ahead of us, they'll say, oh, you're in early. It's like, well, you know, I'm in the Midwest.

Derek Neathery: We got to get up and milk the cows anyway. So you might as well go in early.

Drew Hall: So perfect.

Drew Hall: Perfect.

Bill Douglas: Derek, tell our listeners how they can contact you, and this will be on the show page.

Derek Neathery: Okay.

Derek Neathery: Yeah. So, so emails, emails best. And I'm happy to field questions. It may unfortunately take me a little bit to get back to you. I have a very full plate, but yes, my, my work email is derek.neathery@quarles.com. I've got a webpage on the site, on our firm sites. You can read about me and I'm on LinkedIn.

Bill Douglas: Okay. We'll put that page on the, on the show notes as well. Well, Derek, thank you. I was excited about this and I liked the way you explained not just the exposure, but the ways to address it, the ways to shift thinking about it and saying that it's going to take a while. So we are patient. Yeah, exactly.

Derek Neathery: Chipping away.

Bill Douglas: Tell the listeners, thank you again. As Drew said at the top of the hour, be sure to like, follow, subscribe, promote, send an email, tell your friend they should be on the show or put your hand up and say you should be on the show. We're always looking for thought leaders. Again, we'll see you on the next episode of Peak Property Performance.