06/23/2000

A TOUGH SELL: Tech firms find real estate sector hard to break into

Friday, June 23, 2000

By Steve Brown

Real Estate Editor of The Dallas Morning News

Visitors to the Realcomm trade show in Dallas this week are being greeted with a sea of computer monitors instead of the usual office building models, photos of proposed shopping centers and construc-tion displays.

The maze of exhibits hawking high-tech software and real estate Web sites is enough to confuse even the most experi-enced commer-cial builders and property agents. Even the most gung-ho e-commerce execs agree that the commercial real estate sector is a tough sell for tech com-panies.

"It's probably the most technophobic industry we know of," said Xavier Menendez, a senior manager with Deloitte & Touche.

The often befuddled looks on the faces of the more than 2,000 people attending the two-day Dallas conference, which ends Friday, are all too familiar to ex-hibitors.

"Asking someone [in commercial real estate] to look at new software is asking them to be temporarily incompetent," concedes Craig Robbins, senior vice president of Los Angeles-based Propertyfirst.com. "People don't like that feeling," he said.

But don't expect that attitude to discour-age the industry from trying to peddle its wares to property developers and bro-kers. If any-thing, tech companies are motivated by the challenge.

"In the last 24 months, we've probably seen $500 million invested in the real estate industry, chasing the digital trans-action," said An-drew Florance, chief executive of CoStar Group, which sells real estate research and services to more than 35,000 U.S. subscribers. "The flood of capital is going to ensure the change will occur." The tech companies want to restructure the commercial property in-dustry so that everything from for-sale listings to rent rolls and building-supply orders flow seamlessly through the Internet.

"We are already seeing people buy real estate they found over the Internet," Mr. Robbins said. "All real estate for sale or for lease in the next 24 months will be on the web in some way," he said.

Increasing efficiency

The goal - to replace yard signs and paper contracts with web pages - is to increase efficiency and drive down costs.

"Our clients are telling us they want a faster transaction," said Todd Zeldin, president of the consulting company ACG Pro-fessionals Inc. and Transtopia.com.

"Whether the transaction is a change in ownership or a lease transaction, the goal ultimately is they want to compress the cy-cle. They will be able to respond more quickly to the market and put tenants in their buildings faster," he said.

E-commerce companies and computer software producers first must over-come a bigger obstacle. "A lot of our clients are just not ready today to embrace the leading edge of technology," Mr. Zeldin said.

For their part, real estate execs say they are reluctant to spend thousands of dollars on what may be the wrong system. "Almost all of these guys have been through our office, and the technol-ogy is just overwhelming," said Jim Leslie, president of Dallas-based Stau-bach Co. "You can throw a lot of money at the wrong product," he said.

Sudden growth

The explosive growth of the e-commerce industry is complicating the situation for commercial real estate firms trying to find their footing in the new economy. During the last year, the ranks of e-commerce companies trying to sell products to commercial-property brokers has grown from just a couple dozen firms to more than 200 players.

"We have hundreds of hungry, aggres-sive entrepreneurs that are chasing probably a hundred different business plans," Mr. Florance said. "Reconfiguring an industry this size is a truly exciting thing. This is the third largest b-to-b [business-to-business] sector that exists," he said.

Refusing to let go

But many real estate companies choose to do business the old- fashioned way.

"I believe that we are in a state of chaos, but the chaos has to get organized," said Jim Young, co-producer of the Real-comm show. "The competition is the people still using 3-by-5 cards and manila folders. "The old economy is not letting go - they should," Mr. Young said.

Dale Anne Reiss, a partner with EY Kenneth Leventhal Real Estate, said the commercial-property sector is too big to be left out of the e-commerce revolution.

"Commercial real estate is a $100 trillion business in the U.S. economy," Ms. Reiss said. "It represents 12 to 15 percent of the gross national product of this country. But it's also a fragment industry," she said. "And it's paper- intensive, it's inef-ficient and late to automate."

Still, some consultants are advising real estate clients not to rush into the new technologies.

Timing the switch

"You should be very clear on what your overall strategy is regarding how you use the new technologies in your business," said San Francisco-based real estate con-sultant Stephen Roulac. "If you aren't careful, you will gum up the works."

For building owners faced with installing expensive new telecommunications systems, the choice is less difficult.

"Our customer base is already demand-ing broadband services," said John Goff, chief executive of Fort Worth-based Crescent Real Estate Equities. "Everyone will ultimately have to do it."

And William Maher, director of North American Research and Strategy for Chicago-based LaSalle Investment Management, warns that real estate companies shouldn't wait too long to update their buildings.

"Everyone should try to get these services to their buildings as soon as possible," Mr. Maher said. "You may get out in front of your tenants, but they will catch up with you quickly.

"The good news for building owners is that the telecommunications companies will usually put the systems in your building for free and share the revenue," he said.

"At this point there is little capital cost for the owner, but I'm not sure that will last."