Visibility Breakdowns and Solutions for Real Estate Owners

Introduction to the Visibility Gap in CRE

Bill: Let me start with a simple question. If you own or operate a portfolio of commercial real estate buildings today, could you answer these three questions in the next five minutes? One, which property in your portfolio is losing the most operational efficiency? Two, which vendors actually control the operational data inside of your buildings? And three, where are the problems starting before they show up in the financials? Most owners can't answer those. Most owners can't answer those quickly, let alone at all. Not because they're bad operators, but because the industry has built most buildings with full of technology, but without visibility or without understanding what that technology is, without even knowing what the digital infrastructure is.

Bill: Today, just me on the podcast, I want to talk about what I call the visibility gap in commercial real estate. Welcome to the Peak Property Performance Podcast. Normally, we have Drew on here and a guest. Today, I'm just going to do it because I have something on my mind. So I'm Bill Douglas. Welcome to the show. Don't forget to like, follow, share, et cetera, the podcast so we get the word out and reach out anytime for a free consultation on data or digital infrastructures in commercial real estate.

Bill: So most of our episodes, again, are conversations with operators, engineers, owners, capital partners across this huge industry of ours. And we are now reaching across multiple continents too, whether they be owners or operators from multiple places around the world. Every few episodes, I'd like to do what we call a PPP, Peak Property Performance Insights episode, where we step back and talk about patterns we're seeing across portfolios. So one pattern keeps showing up over and over and over again. It's probably one of the reasons we wrote the book a year and a half ago, the Peak Property Performance book. Commercial real estate doesn't have a capital problem, it has a visibility problem. The owners can raise capital and they can build buildings and they can buy buildings and they can refinance those assets, but basically they can develop, they can operate, they can buy and they can trade. But when it comes to understanding what's actually happening operationally inside of those buildings, the visibility often disappears.

Bill: So today I want to break down where the visibility gap comes from and why technology hasn't solved it and what high performance operators are starting to do differently. So there's an illusion of data, right? Let's start with something I hear all the time. Owners will say, we have a lot of data. Well, you might, you might not, and they're not wrong. There is a lot of data, but buildings generate enormous amount of information, but you have monthly financial reports, leasing reports from this system, maintenance reports from that system, energy dashboards, maybe, but you have utility bills, you have vendor platforms all over the place. You have your resident engagement platform, tenant engagement platforms, connectivity platforms, access control, et cetera, et cetera, et cetera. So there's no shortage of information. The key distinction here is most owners don't actually have data. They have information, but they have to log into multiple systems to get it. What they really have is reports. Those could be screenshot reports, dashboard reports, PDF reports. Now we see exported spreadsheets. We see CSV sheets trying to be merged. We see Fortune 100 companies selling DMS systems to clients that the datasets are actually really, really archaic, not the front end, but the backend, and they don't want to share it, right? The client who's operating the building gets a summary from the vendor, and the vendor says, we got you. We're doing AI. But basically the reports are all they get, and reports are very different from structured operational data. So reports are interpretations of information, but if you want to really understand how a building is performing, you need the underlying signals. You need the operational data itself, and that's where the visibility gap starts.

Bill: When we wrote the book, we talked about actually the story behind how the book's idea started was, I was on a panel at a trade show, and I started to say, you guys and ladies don't have access to your own data, and somebody challenged me on it, and I said, do you think that Amazon or Toyota, like pick distribution or pick manufacturing leaders, and I said, even a leading hospital, you think any one of those three industries, let alone leaders in that industry, would let another company come put a network on their property and mine data out of that property? The room went silent, and I said, we see buildings all the time that do this just because they want to get it done. 45 days from go live, when a building's being built, the TCO's coming, they're just throwing systems up, and they're throwing networks in, and it's not monitored, it's not managed, and nobody cares what the data is, they just want to go live, which I respect because they need the revenue, pay off those loans, et cetera, et cetera. But the problem is they're giving away so much information and so much ability to reduce expenses and so much ability to increase revenue. So basically, they're giving away NOI, and they're giving away intellectual property, and it's in their own asset that they built and that they leased up. So I walked off stage, and somebody from a very large REIT walked up and said, you should write a book about that because you're dead on. So fast forward a year, and there was a book being published by Fast Company Press, and that's why we keep talking about it here on the podcast. We're just trying to share success stories, share horror stories, share things to avoid.

Understanding Property Management Challenges

Bill: So let's get back to the topic, where visibility breaks. Part one is property management. The first place that breaks down is third-party property management structures. Not because the property managers aren't great, but the property managers are good at leasing and operating buildings, keeping tenants happy, making sure that their tickets are solved when their hot water is not there, or there's a leak where it's uncomfortable, or they need to move, or et cetera, et cetera. They are not trained, they're not educated, they're not skilled in data and digital infrastructures. They can be, but most of them are not, and to ask them to do it is a big ask. I don't think that's fair. You wouldn't take your kid, hand him a license, hand him the keys when he's 15 years old and say, go drive. No, we spend a year at least training them how to drive. That's the kind of thing we're talking about, or you wouldn't hand him a commercial driver's license at all. So most portfolios are operated by third-party property managers, and that's very normal. That's how the industry works. But the technology stack typically sits inside the management company's environment. Now, the management company needs their systems and they dictate their systems, lease management, et cetera, and that's okay. I'm talking about the digital infrastructure behind it and where the data goes. So the digital infrastructure and the data should be vendor agnostic, and that's what we keep talking about here. So the owner receives monthly reporting package, operating summaries, budget variance reports, the old way, but the underlying operational systems often sit inside the manager's ecosystem, which means the owner receives summaries, not the raw signals. That makes it very difficult to see what's actually happening operationally.

Bill: So imagine if you, the owner, actually owned and controlled the digital infrastructure and you owned and controlled the data flowing out of it, regardless of which ecosystem was chosen by that property manager. You could trade them out. You could trade vendors out. This is vendor agnostic. Remember, we're talking about data and digital. So the second part of where visibility breaks is vendor fragmentation. I get kind of fired up about this because I'm a supply chain nut. So think about a typical building today. You might have a property management system, an accounting platform, leasing, maintenance, maybe an energy mining platform, building management, building automation, could or could not be the same. Older buildings might just have thermostats or thermostat control systems. We've got access control. Lately, we see a lot of package management systems, parking controls, ISPs, smart, smart building systems, PropTech this and PropTech that. Every one of these vendors is solving a specific problem that they were hired to do. So they're doing the right thing. The vendor is. And each system generates its own dashboard. But here's the big issue. Each system answers its own one question or two. Very few systems answer the owner's question, right? Again, the vendor is doing what they were hired to do, but the vendor can't see between, I mean, the owner can't see between vendors, excuse me. So the owner ends up with dozens of dashboards, but no unified understanding of what's actually happening across this asset or across the portfolio. So what you get isn't a platform. What you get is a digital hairball. Like, I know you open the closet in some of these buildings and you see a bunch of wires and blinking lights and older buildings are all dusty and the rise or congestion and you close the closet because you don't know what's in there and you're just going to let it run until it breaks. So that's often how it works. The visibility is what that closet is generating. Where is the data? It starts with having control of the closet and the systems and the devices in the cloud, et cetera, et cetera. The digital hairball can be pretty nasty.

Portfolio Blindness and Acquisition Reset

Bill: So that was two. Let's talk about where visibility breaks down. The third level is portfolio blindness, right at the portfolio level, we have the same visibility issue. We see this so often. Many owners ask a few simple questions like they're surprisingly hard to answer. Which of my assets are experiencing the most maintenance issues? Which buildings have the highest utility drift? Like why is this the same footprint relatively in two different markets? Why is one so much more expensive when the utility rate's only 3% different? Like it doesn't make sense. Which properties are producing the highest resident support load? These are incredibly important operational questions, but in many organizations, answering them requires pulling reports. And to pull reports, you got to log into multiple systems, reconcile spreadsheets, manually assembling insights. Sometimes it takes weeks, which means it usually doesn't get done, it doesn't get analyzed. The data's there, but just as any organization, everybody's busy, right? And then a tenant speaks up and that is the most priority because the tenant's the customer. So it's not visibility, that's detective work. We're talking about visibility. We'll take it further in a future show.

Bill: That was three, right? Visibility breaks. Number four, acquisition reset. Like the fourth place visibility breaks down is during acquisitions. Every time a building changes hands, we see digital history of that building often resets. Mainly because some vendors get reset or mainly because when ownership changes, the accounts are reset and they don't carry over. So we're talking about the data. Remember, systems change. Vendors may or may not change. Contracts definitely change. Platforms may or may not get replaced. It disappears. That's the hardest thing. It just disappears. And the operational memory of the building gets wiped out.

Solo episode: If the property manager is kept, the memory up here doesn't get wiped out, right? But that's not replicable. We're talking about the replicable operational memory of a building, which should add value. We see that increase the property value at trading. So imagine buying an aircraft where the maintenance history disappears. If you've ever watched Repo Man, airplane Repo Man, they pay another $50,000 to $100,000 if the maintenance book is there versus if it's not when it's repoed. It's amazing. We are going to see commercial real estate buildings, and we already have seen some, get a quarter million dollars more because they have a data lake showing the operation history, showing the failures, the leaks, the problems, showing the efficiencies. Reduces their insurance, but it reduces the risk for the buyer. So we see the buyer paying more for it. Commercial real estate, this happens all the time.

Cost Implications of the Visibility Gap

Solo episode: So the cost of the visibility gap is massive. First in operational efficiency. Second is in capital miss allocation, like when CapEx decisions get made based on anecdotes rather than data. You didn't need to buy another network. If you already had one, you already had a core digital infrastructure that could run that. You don't need another network to run your smart locks or your smart thermostats. It's a waste of money. It gets messed up is in scaling limits. As portfolios grow, complexity grows faster than visibility. So think about that. How am I outgrowing my visibility? It happens all the time. Eventually the organization hits a ceiling where it becomes harder to manage the portfolio effectively. And you don't want to scale your portfolio staff linear with your portfolio. That's not how the leaders do it.

High-Performance Operators and Data Control

Solo episode: So the good news is that some operators are starting to approach this differently. This is what high performance operators do differently. They focus on key principles. A few of them. First, they treat digital infrastructure like a real infrastructure, like the other assets they've invested in and their asset manager is tracking the ROI like technology is not an expense. Remember, technology is an investment. Just like mechanical systems, elevators, et cetera, the digital layer of the building needs architecture. It needs ownership and it needs ROI expectation.

Solo episode: Second, they control the data layer, not letting every vendor control its own silo of information. Every vendor still needs their own system, remember, but the silos of information go away because the data layer is actually owned and controlled by the property, meaning by the clients. Third, they prioritize operational signals over reports. Instead of asking for more dashboards, they ask what signal tells us whether the building is performing well, what signal tells us whether or not we have a problem going on, what signal will keep us from having a massive insurance claim, for instance, or a spike in our utilities. What signals mean our building is more efficient, uptime, or are we avoiding utility anomalies? Are we avoiding large motor starts, for instance, during peak times? Am I starting my large motors during peak utility times? I don't want to do that.

Solo episode: So think autonomous activity. Signals are heard by the property itself and then the property can send out control signals to other systems. So it's not just an integration, it's actually making the property autonomous based upon signals from the vendor systems you choose talking to the other vendor systems. And you're not talking about a direct integration between the vendors because this vendor might go away. If I have five vendors and I integrate them, this one goes away, it all falls apart. The spiderweb collapses. But if the vendors all have data going through the palm of the hand, then you can change this finger out and none of the other ones are a problem. Maybe that's not the right analogy, but it's one I just made up. But think about reliance on data, not reliance on integration between vendors that are going to get aggregated.

Prop Tech Market Trends and Challenges

Solo episode: We see a lot of change in the prop tech markets right now. We see prices going really high in some of these vendors. We see some vendors, especially ones that are venture capital funded, go away because their performance isn't there. So the VC shuts them down. We're seeing a vast amount of roll-ups in private equity. So if you haven't already experienced vendor consolidation, then you will. So if you only control your data layer, you're less immune to being hurt by it.

Final Thoughts on Digital Infrastructure

Solo episode: So in closing, real estate has always been an operational business. We all know that. But today the industry is running on digital infrastructure that it didn't design. Think about that again. You buy a building, you didn't design that digital infrastructure and that's where the visibility gap exists. If you built the building, your architect designed the physical system, right? Your mechanical systems, your electrical systems, your water systems, your air systems, all of that were designed. Was your digital infrastructure designed? Was it mapped? Was it managed? Is it monitored? More importantly, where's the data? Where's the data flow? Where's the data repository? Is it being leveraged for efficiency and for maximum revenue?

Solo episode: Who actually controls the data inside of our buildings is a key question we encourage everybody we talk to, clients or not clients, it doesn't really matter. Ask the question, what signals are we missing? Because once you can truly see what's happening operationally, you can start improving performance in ways that aren't possible otherwise. And not just, again, not just reduce expenses. You can impact your insurance rates too. You can reduce the spend on utilities. You can sometimes reduce labor and manpower, especially overtime, truck rolls, emergency tickets, things like that. But you can actually increase your revenue if you do this right. This is the path to peak property performance.

Solo episode: So thanks for listening. We would love to talk to you anytime. We have complimentary review slots. You can just contact us. You can contact me on LinkedIn. You can hit us up at OpticWise.com or go to the Peak Property Performance website, see the podcast. Just reach out at any time. We would love to talk to you. Thank you for listening. Look forward to seeing you on the next Peak Property Performance podcast.