Unlocking Value in Commercial Real Estate: The First C for Clarify - Know Your Systems, Know Your Value

Introduction and Catching Up with Bill

Drew: Hey, welcome back to the Peak Property Performance Podcast. It's me, Drew, and Bill's back with us.

Bill: Happy to be here. Hello, everybody.

Drew: Yeah, well, okay, Bill, how you been since that last episode? You worn out like me?

Bill: Good. Colorado, awesome. No, I'm not worn out. Busy, but I like busy, and a lot of that busy is life, you know?

Drew: Yeah.

Bill: I choose to be this busy. It's fun. Who doesn't want to live in Colorado?

Drew: Oh, yeah. Well, I don't think we wanted that message to get out too far, though, right?

Bill: Oh, yeah. You and the other two million people that have lived here.

Drew: Exactly. Yeah, exactly. Yeah, it's funny. Just real quick, when we first moved to Colorado, that was like one of the first things you said was, nice to meet you, where are you from, fully expecting that it wasn't going to be Colorado. I mean, that was a long time ago when we moved here, but I don't know.

Bill: Well, I have two sons. They're 26 and 30. You know this story, but the readers don't. The 30-year-old is a Florida native, and the 26-year-old's a Colorado native, so that's how long I've been here.

Drew: Yes.

Bill: I was here long enough ago that they don't give me flack anymore for being a California or a Texas transplant.

Drew: Yeah, that's what I end up usually saying, is practically a native.

Bill: Practically a native. That's good enough, right? I have a kid who's a native. Does that count?

Drew: Yes, it does. Yes, you can inherit that.

The Five C's Framework in Real Estate

Bill: Yeah. Well, okay. So, let's see. Reintroduction real quick to the five C's that we alluded to in the previous episode. It's the first episode. The five C's that we will talk in and out of and through throughout this series, clarify, connect, collect, coordinate, and control. So today, we thought we would hone in a little bit on that very first C of clarify. What does it mean in your commercial real estate property portfolio, what does it mean to clarify when it comes to your data and digital infrastructure?

Drew: So, let me lead us off with just one sentence, just to kind of get the thoughts rolling, and the thought is this on clarify. Know what you own, where you're leaking value, and what your data is really worth.

Clarifying Ownership and Control of Data

Bill: There's a lot in there. There's a lot in there. I think at the beginning of the book, we talk about the magic formula, right? But it's based on simple questions. Who owns and controls your digital infrastructure? So the digital infrastructure, we mean all the networks in your building, systems, whether they be hardware or software or both systems, and then the same thing for your data. Who owns and controls your data? Again, you'll hear us say this a million times. By data, we're not talking about user data, not tenant data, not employee data. We're talking about the data generated by your building and the systems in your building. Things that you should own and control and monetize.

Drew: Imagine if you could look across multiple data sets, but you have to start with clarify. You need to know what you own and you don't own, or what you do own and don't control.

Bill: Yeah, exactly. Yeah, I mean, I find it really does. I can see why this starts off so obscure, because let's just imagine you're stepping foot into one of your commercial real estate properties and you're just standing in the lobby. Imagine everything that's going on around you in terms of what's making the lights on, what's making the lights off right now, with the HVAC, just every single system that's involved. All of that has some kind of control unit behind it. And then all of those control units behind it either do or don't have the ability to generate data. They very likely do, but that's what we're looking for here is you got to know-

Drew: They're generating data, Drew, but where is the data?

Bill: Yeah, exactly. That's why I guess what I was saying is depending on how archaic it is, it might be not much to really be able to harvest, but the odds are, you're right, there is data and the pursuit-

Drew: Even if it's analog, it's still generating data.

Bill: Yeah, that's a good point. Is it worth collecting? That's your decision, but until you clarify, you don't know. Or maybe you want to grab it and you need to change that system, or maybe you can grab the analog. You can do analog to digital conversions.

The Role of Data in Modern CRE Systems

Drew: Yeah, and the more modernized these systems have gotten, the more modular that data has become, more granular that data has become. So I think that's just it, is just imagine the decisions that are being made in real time in every system throughout that campus, and imagine that you have the ability to know why was that decision just made? And take a simple one, like the air conditioner turning on or turning off. Those are super simple, but there's thousands and thousands of decisions like that that go on that are not so obvious throughout those systems. So yeah, clarify, clarify. What are all those systems? How do you move through the process of making sure that everything that has the potential to pass data is passing data? It's passing data in and through your, I'm going to say backbone, because that's kind of my background, right? Is more technical. Your backbone is your series of networks. Digital infrastructure, your backbone, your networks, they're all synonymous. Digital infrastructure goes beyond the traditional network, but for the purposes of our audience, most of the time we're talking about networks.

Bill: How many networks are in your building that you don't own, or how many are there that you think you own, but the vendor is taking the data and they get to monetize it? So clarify really comes down to, do you know what you know, or do you not know what you don't know? Like the unknown unknown is a worse problem than the known unknown. Like if it's a known unknown, I can fix it, but this is an unknown unknown. So our clients are early adopters and the industry is moving to actually looking at digital infrastructure as an investment, not an expense, and then that investment should generate the same yield and return or more than traditional sticks and bricks do. Like you invest in facades and floors and glass and signage and countertops, if it's an apartment, et cetera, et cetera, et cetera. Why is the network and the systems in the building considered an expense? Why shouldn't they be an investment that generate a return? So that is the premise of the entire book of The Peak Property Performance is embrace digital. Think of it as a strategic value driver to your property and to your portfolio.

Inquisitive Approach to System Optimization

Drew: Yeah. And I think, you know, like a word that's sticking with me right here is like inquisitive, be inquisitive. And what it makes me think of is Bill, you'll remember this, we had a building engineer in a commercial facility who saw something hanging on the wall in one of his data closets. And he goes, what is that? I don't know what that is. Right. And that's just boom. Being inquisitive is what moved him from not knowing what it was, at least to the next step of, can we find out what this is? And is it possible to utilize this system and therefore get data from this system and feed data to this system? So I think it starts-

Bill: Well, he didn't know until we started asking him to clarify and then he said, can you help? So we went through a, you know, we call it a DDI, a data and digital infrastructure review. We just call it audit, but audit comes with some negative connotations. So we'll call it a review and in doing so, he found a lighting control system that was never enabled. Right? Once he turned it on, they saved over $56,000, I believe the number was, in year one, in energy expenses for common areas alone, for a system that was hanging on a wall and never turned on because it was never documented, never managed, never monitored, never connected. And there was no data. So they paid and have it installed. And it sat dormant. Like, I don't even know how much it costs. We couldn't find the receipts. The building was five years old at this time.

Case Study: Unlocking ROI Through Clarification

Drew: Yeah. Just night and day difference in terms of the possibilities, the potential to move the needle on expenses and ROI. The system was out, it wasn't used for five years and the ROI was still positive and by month 15, I think. So we can kind of figure out how much it costs by that. But John said it was positive by month 15 of turn on. It's not going to be positive by month 75, but that was different. But think of the return on that. They paid for this review. Think of the return on that. They found $56,000 from a review because of one bind, because they just didn't know it was there. How many times have we gone into buildings and it looks like a rat nest, like in any of the closets, or there's riser congestion, or nobody knows what that system is and don't unplug that one because we don't know what will happen. It is hard to figure it out. It's tedious, but it's straightforward.

Bill: Exactly. It's worth it. It's worth it to be inquisitive. We're fighting the urge to move through the rest of those seas. We'll talk about those in future episodes here, but man, starting with that, being inquisitive and really just wonder if those systems, and that's the good thing, is at least you can see the systems. You know the things that are potentially being controlled by the control systems that are in front of them. So it really starts with that and taking that inventory. The good thing is a lot of that stuff you can see and that leads you down a path that ultimately enables you. What do you own? Again, we're going back to systems and we're going back to networks. What do you own and what do you control? Is it generating data? If the answer is yes, where's the data? We're not talking about how to solve the problem yet. We're just saying, get a lay of the land. You can't fix something if you don't even know you have a problem. If you have a problem, then what are my tools? Until you draw a roadmap or have somebody help you draw a roadmap. In the book, we give you the audit form. Your team can do this yourself. You don't have to come to us. You can do all of this yourself. It's right there in the book. It's a tool. We give the strategy away on how to do this.

Drew: Yeah. I think, too, another principle I'm thinking of, too, is don't allow yourself to be hindered by assuming that something is not possible. You know what I mean? Even in that example we were just talking about with the lighting system, we know for a fact that the assumption up to that point was, I'm limited in what I can do in terms of controlling lights in this building. I can do some things, but I think this is all I can do. Then comes the research. Then comes the investigation, the exploration.

Solo episode: Open-mindedness, the investigation deeper into what is this thing, what is it, what's possible to do, the calls into the manufacturer to find out what's possible, what will you tell, you know, those kinds of things, moving through the data. That had to do with occupancy and building usage and common area and traffic patterns and there's a lot of other benefits that came out of simply turning the system on and garnering the data.

Drew: Yeah. I don't know, five years ago had they turned the system on, it would have just been controlling lights on a standard pattern instead of now they collect the data and they actually analyze it a little bit and they adjust it accordingly. Like, yeah, it's different there because they rent their common area, their auditorium to a church on Sundays so they could make some adjustments through the lighting program and then they know if it's gonna affect common areas and they could adjust their leases accordingly.

Bill: Right. Rather than turn the whole building down on weekends, they know they're gonna have occupancy on Sunday. Yeah, I think it's important. They're further monetizing their common areas. It's a beautiful model for everybody. The church saves money, the building makes money and still saves utilities. All by asking, hey, what is that?

Solo episode: Yeah, we get a review, a DDI review, they would have never found this. And there's one tiny little find. Wasn't complicated, it was tedious, but it was strategic.

Drew: Yeah, and I think it's worth noting too here that, maybe it's obvious, but they went over seven years, about seven, seven plus years, not exploring this. And we don't know exactly why that, what happened in those seven years, but, you know, at least part of it would have been, you know, distracted by the day-to-day operations, just keeping this place going.

Bill: Well, I said the building was five years old, maybe it was seven. So, yeah, they went a long time. It was new and then they just ran it that long. Just status quo, oh, lights are on. Somebody knew they bought a lighting control system, but it might just have been the contractor that built the building and the vendor that sold the system, and then they walked. There was no maintenance, there was no strategy. Like, somebody made an investment in that thing hanging on the wall. Why didn't you demand a return from that thing? It was a capital investment. It was part of the CapEx, the build cost of the building. How come nobody asked what it was worth long-term to the commercial real estate income? It should have an income component. If it doesn't, you probably shouldn't do it.

Preparing for the Next C: Connect

Drew: Well, and it's kind of the perfect segue into the next episode here, because we're going to talk about that second C of connect, but, I mean, in that example that we're touching on here, that system wasn't actually connected in terms of that backbone that we talked about. It was connected in terms of being able to do some control to the lighting system across CapEx, yes, of course, but it was not connected in terms of data into, again, I'm going to use the word backbone. We'll get into a little bit more of that connect on the next episode, but it seemed like a good segue to say that was what was needed for the next step there.

Bill: Well, don't forget to, you know, like and follow and subscribe to the podcast. We appreciate you being here and we look forward to talking about connect on the next episode.

Drew: Yeah, absolutely. Thanks. See you guys on the next one.