07/16/1998

Software for Real Estate – What is considered State of the Art?

By Todd Zeldin

President of ACG Professionals, Inc.

For years, real estate and technology have been worlds apart. As a relationship business driven by "the deal", not much thought has gone into the development of a long-term technology plan. That is, until now. Today it is imperative that technology be leveraged in order to process information more quickly and accurately. With the frequency and magnitude of deals being consummated and the stringent requirements to process data, technology-centered companies have a definite competitive advantage.

If we were to look back fifteen years, we would conclude that the industry was not very incentivized to be efficient. In the mid-eighties, the market was so good that even if pricing errors were made or companies were inefficient in the management practices, returns were high. Prices appeared to be on an ever-climbing road to the heavens, and capital was readily available. Computers existed, but only on the desks of a handful of people and generally not employed by decision-makers. There were three primary functions of computers: word processing, spreadsheet analysis, and accounting and forecasting.

The most commonly used word processing packages were Multimate, Leading Edge, and WordPerfect, with WordPerfect having the lion's share of the market. These products included such advanced utilities as bolding and italicizing text, previewing before printing, and spell check. None had a graphical interface or mouse control, and all had Alt/Control/Shift key functionality (i.e. Shift F7 could preview text before printing).

The leading spreadsheet application was Lotus 1-2-3 with its innovative "slash" key to call up a menu of options available for the user. WYSIWYG or "What You See is What You Get" made its grand opening soon afterward, and built-in formulas to calculate loan amortization, present value, and IRR made forecasting much simpler. Spell check was not available, nor was the integration of other traditional word processing functions. Although one could sort columns of data and use a spreadsheet to maintain contact information, database functionality was not the mainstream.

Accounting and forecasting systems specific for the real estate industry were used sparingly. Most companies kept their books manually or on Lotus. Several discounted cash flow (DCF) applications were available including FINSIM and PRO-JECT, but only the largest institutions invested the time and capital to integrate these tools. There was some recognition that using off-the-shelf applications for forecasting afforded opportunities to trade data without reinventing the wheel; however, the cost and time to enter and then manipulate these programs was high.

In the early nineties, computers took off as did the number of software applications available to the real estate industry. Windows 3.1 replaced DOS as the primary operating system, but the traditional leaders like WordPerfect and Lotus still had versions that ran under the DOS platform. Most companies were adopting DCF applications, with PRO-JECT leading the industry and Office2 and ARGUS lagging behind. Accounting systems like Skyline, MRI, and TenMan were available, but with no integration with any other products. More companies were employing databases, with ACT! becoming the market leader for contact management.

It is only during the past few years that software has become a strategic tool to gain competitive advantages in the real estate industry. To discuss what is state-of-the-art in the real estate industry requires that we juxtapose current products with its predecessors. Until just a few years ago, the real estate industry was manual and lagged significantly behind other industries. Today, some companies are investing significant resources to develop innovative software solutions that will distinguish their business practices from the norm.

ACG Professionals, an Atlanta-based consulting firm that provides analytical, technology, and lease abstracting services to hundreds of REITs, investment banks and institutional owners and managers of real estate, recently completed a survey of one-hundred of its largest clients to inquire about the attributes they want from their real estate software applications. Some results from the survey are listed in Figure A:

Using the results of this survey as an indicator of user requirements, let's explore some of the leading tools available in the market. According to Ronnie Dean, Managing Director - Strategic Development of Houston-based ARGUS Financial Software, ARGUS has made great strides in providing increased functionality without compromising the user friendliness of their program. ARGUS has a superb portfolio shell, allowing users to choose multiple properties, individual tenants, and partners and roll up the summary cash flows. Additionally, one can sensitize cap rates, renewal probability, vacancy and credit loss, inflation rates, and all market leasing assumptions on a portfolio basis without having to create several versions of the same property. ARGUS has also been working on improved links to property management systems. "We recognize the importance of eliminating the redundant input of tenant and operating expense data and are diligently working with several vendors to provide a more elegant bridge between ARGUS and other industry applications," says Dean.

The Dyna product also provides portfolio functionality. According to Paul T. Donohue, Senior Marketing Consulting of Clearwater Florida-based Dyna Software & Consulting, Inc., Dyna has a distinct competitive advantage because it is written on a native database, Access, which is an open database. One can perform cash flow, book income and after tax analysis in a single file. Additionally, one can tag each asset into user-defined portfolio groupings for consolidation and sensitivity analyses. Like ARGUS, the user can sensitize variables on a portfolio basis.

Dyna recognized early on in the development of its products that connectivity to other programs is essential to its ultimate success. Donohue adds that Dyna retained Microsoft's consulting division to assist in writing their new Windows product to make sure that one can directly save information in a Rich Text Format (RTF) without having to import or export data.

"The Dyna link to CTI is the state-of-the-art link in the industry, going both ways to and from CTI. The bridge goes through Horizon, which is CTI's asset planning system. This link is largely untouched by human hands, providing an administrative advantage over other links in the industry." Donohue concluded that they are currently developing a web-based report writing system that will allow reports to be saved as the industry standard HTML file. This product is expected later this year.

It should be noted that although the official position from both ARGUS and Dyna representatives is that one can bridge their applications to property management and accounting systems, both companies recognize the need to improve further these bridges. Although users rank this at the top of their list of future enhancements, the capital investment required to seamlessly integrate several products -- coupled with the lack of a clear market leader -- has postponed the development and acceptance of any off-the-shelf application to exchange information. There are, however, unique circumstances whereby companies have succeeded in integrating their systems.

LDSOne, a lease abstracting and administration system developed by Atlanta-based ACG, is designed to track a lease from a proposal through its execution. It uploads lease level information from all of the most popular accounting systems, and provides a friendly Windows interface for one to input, query and report on financial and non-financial lease clauses. According to Kelly Kepley, who recently left her position at Regency Realty as the Senior Administrator of LDSOne and now sells the product, "LDSOne is a valuable tool for leasing agents. Leasing activity is entered into the system, and master leasing and status reports are easily produced. By streamlining the process, agents can concentrate on leasing their properties, and being out in the field, rather than being stuck at their desk, bogged down by paper work."

. Atlanta-based Compass Management and Leasing, Inc. has successfully developed bridges to several programs and delivered a state-of-the-art tool called Magnet, according to Compass President, Bruce Ficke. Recognizing the need to provide benchmarking in order to form strategic decisions about its corporate facilities clients' portfolio, Compass uses its home-grown technology to reduce operating costs and to improve service delivery levels to its clients. Compass can look at a portfolio, drill down to a property, and then further drill down to the cost components that make up the expense of that property.

An essential component of the technology Compass employs is bar-coding all equipment and offices. A technician scans the bar code and equipment he works on, and then scans out. Magnet then provides performance information regarding response time, overall cycle time, and frequency of maintenance issues. "Getting technicians and facility managers free from paper work and back in front of the customer is critical to our future success. By significantly investing in our technology over the past several years, we have enabled our clients to receive a world-class product which we can deliver at a competitive cost," Ficke adds.

Chet Joglekar, CEO of ACG Software, Inc., recently completed a custom database system for UPS. The system offered several challenges, including an intranet-based database system that automates the process of tracking facilities and lease data in all of the international locations where UPS owns or leases properties. The system is tightly integrated with the UPS corporate intranet to allow regional and district real estate personnel to negotiate and manage leases, and permit corporate to review and approve the deals put together in the field. Corporate also reviews project-tracking information on the field level. "The web is going to be the equivalent of a phone line for data. What telephones did for personal communication, the web is going to do for corporations relating to data and information communication," Joglekar adds.

Although these are isolated examples of successful technology-based advancements, the real estate industry still lags behind others like telecommunications. As the market approaches its next down cycle, those companies that can process data more efficiently will gain a significant competitive advantage. The time has never been better to invest, and those who do will reap the rewards well into the future.

If you would like to address any interests, you may contact Todd Zeldin at tzeldin@acgpro.com.