I don’t have a crystal ball (if I did, I’d be sipping something delicious in Bali right now). But as the old adage goes, I do know that what goes up must come down. These days that applies to the economy, as recent recession-focused headlines show.
And, while I’m not one to stoke fears about a recession, I don’t have my head in the sand either. If you’re in commercial real estate, neither should you.
Our industry is by no means recession-proof. When downturns hit, they hit real estate — hard. But behind every challenge there often lies opportunity. The smart players in CRE today know that better than anyone. As the founder of a tech startup for the commercial real estate loan industry, I bet you can guess my advice to CRE companies wondering how to hedge their bets when (not if) the economic downturn hits.
If you guessed technology, you guessed right.
Why tech? I have two words for you: intelligence and competition.
As most of us know from previous downturns, one of the first things to happen during a recession is uncertainty. And smart CRE leaders know that one of the most effective ways to mitigate that uncertainty is through market intelligence. These days, we hear a lot about how everything is about moving to data-driven decision-making. In fact, it’s beginning to sound like marketing hype. But let’s look at that seriously.
During a recession, it is essential to understand the commercial real estate market, and there is simply no better way to do that than to adopt tech platforms and tools that let you look at both similar historical records as well as current conditions to help you make better, more informed decisions under conditions that don’t leave you much breathing room for mistakes. If you are a broker or a lender in CRE, my recommendation to you is to immediately shore up your firm’s operations, ditch the spreadsheets and adopt a platform that gives you good analytics about both the CRE market (external) and how your team can work more efficiently (internal).
The second thing that happens during a recession is competition. The relative scarcity of deals is a ruthless way to weed out the players that aren’t working efficiently. Not to belabor the point, but that’s precisely one of the key competitive advantages that today’s proptech solutions offer our industry: efficiency, be it workflows, pipeline tracking or closing deals.
Let’s take a quick tour of the field to find out how today’s CRE leaders are leveraging tech to get their proverbial houses in order.
One of the troubling trends that I notice is that a majority of today’s commercial brokerages, as well as banks and other CRE lenders, are not adopting technology at the pace or scale that reflects where other industries are moving. If we are, indeed, headed for a recession, it concerns me to see even some of the top-tier institutions lagging behind on the very thing that can help them stay competitive when the chips are down.
In my informal survey of some of the country’s largest CRE brokerages and lending institutions, only a scant handful said they are making investments in true innovation and adopting technology (particularly on the capital markets side) that is specific to CRE and, as important, will position them to be much more efficient and savvy with everything ranging from internal operations (tracking pipeline, staff and workflow) to using market intelligence to make smarter decisions in an uncertain market.
The rest fall into three categories: doing nothing at all (no tech), sticking with familiar technology but eschewing the innovation of CRE-specific tools or choosing to create their own tools in-house. Let’s examine those categories.
Brokers and lenders who haven’t embraced meaningful tech to run their operations — from communications and transactions to analytics — stand to be at a significant disadvantage in the event of a recession. Aside from the obvious benefits of technology (efficiencies and cost savings), these brokerages stand to lose their competitive advantage when it comes to analytics and market intelligence.
That’s because technology offers increasingly sophisticated analytics tools to help gauge the external (market intelligence) and internal (managing the pipeline) landscape. When things go south, that’s precisely the time when analytics are needed most. The most common objection to adopting a tech platform that I hear from some firms — that lenders won’t adopt the technology — might seem reasonable during a strong economy. But in a recession, when lenders will be competing for fewer deals and trying harder to gain a competitive advantage, this objection rings hollow.
Those who are simply staying the course with tech by using familiar tools (like Salesforce as a CRM) that aren’t industry-specific also run the risk of falling behind. I’ve nothing against Salesforce (a strong, innovative company in its own right), but there’s so much more that CRE proptech offers that simply stopping at Salesforce is selling yourself and your firm’s future short.
Another handful of companies do recognize the need to innovate, albeit through ways that carry a higher likelihood of failure and low user adoption. These brokers and lenders understand the value of using tech to streamline interactions and transactions among brokers, lenders and borrowers, but their approach is to develop those solutions in-house. In my many years in tech, I’ve seen firsthand how common it is for companies to tackle and then abandon in-house tech projects because they realize too late they’ve bitten off more than they can chew. For these, the burden of developing and maintaining complex software is too much to handle long-term.
My advice to today’s CRE brokers and lenders? Now is not the time to stay the course. Get your house in order, and learn to adopt innovation today, before you need it tomorrow.