08/16/2000

A Real Estate "Techie" Reflects on the Use of the Internet

Technology and its applications to the real estate industry is one of the hottest topics of conversation in the commercial real estate world right now. Everyone seems to be looking for ways to decrease the time from contract to closing, without compromising the quality of the entire due diligence process.

ACG Professionals, Inc. is a leader in providing due diligence support services including financial modeling and analysis, lease abstracting, software technology support and implementation as well as corporate real estate consulting to all areas of the real es-tate industry. TODD ZELDIN, President of ACG Professionals, routinely works with participants in acquisition, disposition and recapitalization of real estate, including REITs, Wall Street investment bankers and financiers, corporate real estate companies and major pension funds. Eventually, all of his conversations lead to an ongoing discussion on how should companies view technol-ogy and adopt the new way of executing their daily business transactions. Technology has not moved as quickly into the commer-cial real estate companies as it has into the residential markets. ZELDIN shares some of his thoughts on the application of tech-nology to commercial realty and on the ways traditional business is going to have to change.

What is the main force changing the way real estate professionals approach their business?

Without a doubt, the use of technology is the driving force behind changing the way real estate consultants, lenders, purchasers, sellers, brokers, tenants and intermediaries transact their business. The speed at which the use of the Internet has gained accep-tance is having a significant impact on worldwide business. It has been reported that acceptance of the use of the Internet doubles every ninety day, with the web reaching over 50 million users in less than five years. This far surpasses acceptance of any other type of technology in history. For example, the television took an estimated 13 years to reach this many users, with the computer taking 16 years and the radio 38 years. With the continuing worldwide acceptance of the Internet as a business "tool", information is being transmitted much faster and more accurately than ever before.

Kevin Kelly in his 1998 publication, New Rules for the New Economy, summarized the trend that continues today in the accep-tance of computer technology when he said, "The world of the soft - the world of intangibles, of media, of software, and of serv-ices - will soon command the world of the hard - the world of reality, of atoms, of objects, of steel and oil, and the hard work done by the sweat of brows."

What are the benefits of using the Internet versus the traditional style of performing real estate services?

Real estate professionals are fast realizing that by utilizing e-business and e-commerce they can improve communications, the speed with which they transact business and reach a far broader base of potential "customers" then ever before through use of the Internet. ACG recognized this in the early 1990's and has concentrated on working with our clients to accept the use of e-business in providing our services. This not only improves the turnaround time of services provided within the real estate industry, but also ultimately compresses the time necessary to complete their business. The overall effect has proven that use of technology im-proves overall profitability and an increase in the value of real property assets.

How can e-business or e-commerce improve the effectiveness of the real estate industry?

First, I think we need to understand that e-business and e-commerce are really two different things. E-commerce can be broadly defined and is generally thought of as the use of the Internet by a consumer to purchase specific goods and services from a specific provider of these goods and services. This would include such web sites as Amazon.com, E-Bay and third party service providers to the real estate industry by going on-line, locating the product or service you need and purchasing it without every physically entering a store or office. It is purchasing through a virtual environment. Most people think that e-commerce is the largest part of the Internet. However, this is not true in that over 80 percent of computer technology is represented by e-business through either the use of company Intranets or the Internet.

According toFred Smith, CEO and President of FedEx Corp., "E-commerce will total about $3 trillion by 2004. Although the highly visible e-tailing segment has received the lion's share of media attention, it is a relatively small part of e-commerce. E-tailing will grow to only $184 billion in 2004. Contrasting that, the e-business sector, which is now starting to explode, is expected to exceed $2.7 trillion."

E-business is transacting day-to-day business through utilizing Intranets or the Internet and other electronic devices to manage, operate and execute required business activities. ACG often works on projects involving multiple individuals in different geo-graphical locations. We have successfully executed these projects by working through use of a virtual environment. Through the use of telecommunications via Intranets or the Internet to transmit information necessary in the performance of our specific job tasks, we can directly communicate the results of our work to our clients so they can execute their jobs faster and more efficiently.

E-business is the area of technology that is most affecting the way real estate professionals are changing how they do business. The Internet allows us to interact on a "real time" basis to increase the effectiveness with which transactions or projects can be executed. Intranets have already demonstrated their value and increased use of the Internet is proving valuable in locating proper-ties that are listed for sale or lease, transmission of data regarding available financing and obtaining current market information on real estate markets throughout the world.

What are the implications of using the Internet to owners, users, the capital markets and providers of services to the real estate industry?

Real Estate deals involve multiple individuals needing to communicate and transmit information necessary to execute a transac-tion. For example, if an owner of an office building decides to place the asset up for sale in the open market, through the use of the Internet, that owner can locate and communicate with brokers, sellers and third party service providers to execute the transaction. Third party providers include such services as contracting with due diligence support organization like ACG, insurance agencies, surveyors, appraisers, contacting and communicating with lawyers, mortgage brokers and financial institutions.

The largest risk factor involved in real estate transactions is the liquidity of the asset based on the time needed to complete a trans-action. The timeframe necessary to complete the sale of an office building can take six months or longer, depending on the com-plexity of the property. Use of the Internet can increase the speed with which the transaction can be completed through more ef-fective and faster transmission of information.

Compressing the timeframe from contract to closing is the ultimate goal in the transactional end of real estate. As the old cliche goes, time is money. The traditional way of executing real estate transactions basically included performing detailed due diligence up front by a potential buyer, review of the due diligence by the seller and capital providers and then working on finalizing the financing. With the fast changing capital markets of today, the costs involved can vary significantly from the time the contract is signed until the loan commitments are finalized. Expediting information necessary to complete a transaction by keeping all rec-ords on properties current and then having the ability to just transmit the most current information on-line can ultimately save thousands of dollars. Increasing the liquidity real estate assets will ultimately increase the value of the assets.

Since what you have described represents a change in the traditional way of doing business, how are companies dealing with this?

Real estate is experiencing revolutionary change in the way that virtually every activity in the management and the transaction process of real property is being done. Overall, the real estate industry has trailed behind other industries in embracing the accep-tance of technology in day-to-day business. There are unlimited discussions as to what the timing will be when all real estate ac-tivities will be performed in a virtual environment via the Internet. It is so fundamental based on the rapid changes in technology that these changes are already occurring and real estate people should focus on how to enhance their participation in the change rather than assume that these changes will not affect them.

E-commerce is currently affecting considerations of companies on how they run their businesses and utilize their real estate, thereby causing all real estate professionals to rethink their role in the industry. The physical needs of the traditional users of real estate are changing and these needs vary for each of the major property types. E-business has become and will continue to grow as an accepted way of performing business operations and providing services. Companies and professionals must embrace these changes, thereby participating in the potential for growth professionally and financially.

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