Catch the Wave: Three Tips from Deloitte for Success in 2018
- Dec 05, 2017
Toward the end of each year, Deloitte develops our outlook for the next 12 months in the real estate sector. As we look to 2018, we are struck not only by the disruptive factors at work, but also by the convergence of several key trends that promise immediate and long-term impacts on CRE executives and their companies.
The wave of change that is rolling over the industry in 2017 (see our December 2016 column “Disruptive Innovations: Are You Underwriting These Tech Trends?”) continues to accelerate and is on track to grow exponentially in 2018. In large part, this trend is driven by the need for faster, better data access to improve performance.
CRE firms are deploying exciting innovations in response, including technology advancements that are shaking up the ecosystem, shrinking the business productivity gap and unlocking latent value.
As we ride this wave into next year, we believe that CFOs and finance executives could maximize value creation and growth by pursuing three main strategies:
- Accelerate business by unlocking the value of REITs. Stress in certain traditional real estate sectors, which continue to trade below their net asset values, isn’t necessarily new on the REIT landscape; however, new trends are emerging in light of the shifting number and nature of investors following these companies.
- One such development is an uptick in CRE investor activism, which can force more focus on short-term concerns and delay decisions that create higher long-term shareholder value. Strategies that address this issue include revisiting corporate governance and communications to temper investor activism; optimizing property portfolios; and challenging public versus private listing status. For example, REIT boards could satisfy activist shareholders by conducting in-person and online investor outreach programs. Through direct social media channels, REITs may increase transparency and feelings of inclusivity among shareholders.
- Explore alternative capital options by focusing on fintech startups. Rapid advancements in technology have lowered the barrier to entry in this field, which is becoming synonymous with innovation. While just $1.1 billion has been invested in the 178 RE fintech startups since 2012, prominent models are emerging for digital lending, property transaction services, and even democratized investing solutions. These approaches can help CRE firms improve operations and communications with their customers as well as expand and diversify their lender base.
- Augment productivity by bringing robotic and cognitive automation (R&CA) into your business. Adoption of technology has been historically slow at CRE firms; however, innovations like R&CA and its subset, robotic process automation (RPA), are boosting adoption as the industry moves toward solving many of today’s operational inefficiencies. R&CA can reduce the high level of human intervention we currently see in CRE finance and accounting tasks by performing those chores at great speed, scale and quality—and at lower cost.
This technology frees up real estate professionals’ time, allowing them to focus on higher-value tasks like data analysis, which ultimately leads to quicker decision-making.
For CRE firms considering bringing R&CA into their organization, it will be important to evaluate current finance and accounting processes and tasks that could benefit from automation and assess the necessary implementation approach. For instance, RPA can be used to track invoices for compliance with contractual terms or to periodically review lease contracts to avoid any potential risks of tenant defaults of any contractual obligation.
Steven Bandolik is a managing director with Deloitte Services LP and a senior leader in Deloitte¹s real estate and construction services practice. Bandolik provides advisory services in capital markets (debt and equity), corporate finance, mergers and acquisitions, investments, strategy, restructuring and reorganization, and asset recovery. Bandolik brings more than 30 years of effective, hands-on real estate investment, finance, development, and asset/property management experience, both as a leader and as a strategic advisor.
Jim Berry is a partner of Deloitte & Touche LLP and the leader of its U.S. real estate and construction sector practice. He has more than 32 years of experience serving companies in the real estate, construction and hospitality industries.
Surabhi Kejriwal is the Real Estate research leader at the Deloitte Center for Financial Services where she is responsible for driving eminence and thought leadership for the real estate and construction practice.