CFO Corner: Disruptive Innovations
- Dec 14, 2016
Real estate fortunes have been made throughout history by those who anticipate and respond to major changes. This year is no different. Investors and developers might be remiss not to take note of current trends impacting the sector.
Take for instance the transportation industry, where major advances in automotive technology and related ecosystems have historically had a massive impact on CRE. The introduction of automobiles around the turn of the 20th century increased personal freedom and mobility and accelerated demographic shifts within cities and suburbs, presenting a monumental opportunity to real estate developers and financiers.
Fast forward to present day, where advancements like driverless cars and 3D printing—which are on the brink of lift-off in the mass market—have the potential to offer similar disruption. As these and other technology trends shift into high gear in 2017 and beyond, our annual outlook suggests that investors and developers should begin considering these trends now as they underwrite new property investment and determine what the long-term returns will be.
The rise of driverless cars—part of what we like to call the “future of mobility”—presents the next frontier of opportunity for investors. While many investors may be ignoring the trend, what they should consider doing is including it in their underwriting. The importance of driverless cars—and even the growing impact shared vehicles are having, ultimately leading to shared, driverless vehicle services—should not be undervalued when analyzing investments, even in these early stages of adoption, especially since most deals are grounded in financial models with 10-year forecasts. With analysts predicting that driverless cars will become mainstream in the next 10 to 15 years, investors will need to weigh the significance of this trend as both a risk and an opportunity in their current and future dealmaking. What happens to all of the parking decks and garages? The impact on CRE could be enormous. We’ll explore these considerations more in a future column.
Although 3D printing applications are still in their infancy in CRE, the technology demonstrates a lot of potential on the investment front. Its ability to save considerably on the costs of construction, labor and materials for developers and investors is hugely important for an industry historically plagued by waste and small margins. 3D-printed building and city models can also be used as a more efficient way of pitching properties to investors and other funding sources. Investors might also find value and capitalize on the disruption 3D printing could have on other industries—such as supply chains, manufacturing and retail—impacting both the retail and industrial real estate sectors.
Demographic Data and Predictive Analytics
Big data in CRE, which used to be proprietary among a few large companies, is becoming more available to investors and developers. Venture capital firms are increasingly eager to fund startups that are trying to level the data playing field by capturing external market information to share with sellers and investors. Investors big and small are also increasingly using these tools to optimize pricing and rents in individual markets and to better understand underlying real estate values. The tangible results we’re observing today from such data analytics are already helping fuel more intelligent underwriting and decision-making. Be careful not to get left behind—at some point in the near future, these new tools will be widely adopted by the CRE industry, putting non-adopters at a substantial disadvantage.
Steven Bandolik is a managing director with Deloitte Services LP and a senior leader in Deloitte¹s real estate services practice. Bandolik provides advisory services in capital markets (debt and equity), corporate finance, mergers and acquisitions, investments, restructuring and reorganization, workout and asset recovery. Bandolik brings more than 30 years of effective, hands-on commercial real estate investment, finance, development and asset/property management experience, both as a leader and as a strategic advisor.
Robert T. O’Brien is the U.S. and global leader of Deloitte’s real estate practice and a partner with Deloitte & Touche LLP. He works to leverage Deloitte’s deep real estate industry expertise across consulting, tax, audit, risk and financial advisory services. O’Brien has more than 30 years of public accounting and transaction experience, serving publicly and privately held clients in various industries, with a focus on the real estate and hospitality industries.
Originally appearing in the December 2016 issue of CPE.