Technology: Software Integration Comes of Age in Commercial Real Estate
- Feb 10, 2012
Commercial real estate is notorious as a lagging adopter of new technologies, but even so, the industry is coming to appreciate the value of software systems integration. The concept is sprawling and complex—much like the software systems themselves—but it all boils down to replacing formerly separate software systems with a single framework whose functionalities are closely coordinated. Products are now on the market to provide such integrated systems, but since no two commercial real estate companies need exactly the same functionalities, customization is quite common.
However integration is set up, the goal is the same among commercial real estate companies: enabling a company to look after its assets more efficiently by using data more effectively than before. As computerization in real estate evolved beginning in the 1970s (and later, in many cases), data tended to pool around certain functions, such as property management or accounting or leasing. Separate databases tended to reinforce the formation of corporate silos, especially within larger firms with separate staffs in locations that may have little contact with each other.
The phenomenon of silos, of course, has long been decried by corporate thinkers. The formation and hardening of silos is thought to discourage the use of all available talent to bear on solving companywide problems, or in the case of commercial real estate, portfolio-wide ones, as the vested interests within the silos either resist outside “interference” or erroneously believe they have all the tools necessary to solve their problems.
Moreover, the impact is often more than just psychological (as in turf wars or interoffice rivalries). A long corporate history of separate software systems, with native environments based on different operating systems or database architecture or even computer languages, can make it devilishly hard to upgrade an organization’s information technology. Though not in commercial real estate, one infamous example of a nightmarish effort to improve separate software systems has been undertaken by the IRS, which for years was notorious for its mishmash of systems, a situation so bad that at one point the agency did not know how many computers it had or what they were all doing. After 12 years of IT modernization at a cost of about $3.7 billion, the agency still has significant issues with security, e-filing and other matters.
Advantages of Integration
In the early days of computerized commercial real estate, systems separation was simply the way things were done. But by the early to mid-2000s, more sophisticated software systems, along with the universality of online connections, began to offer companies better options for software integration. Databases, and the tools for analyzing data, became a lot more sophisticated, as well—just in time, as it happened, for an upsurge in demand for more upscale analyses of real estate assets of all kinds.
“Since 2007, there’s been strong demand for more information, and for more higher-quality information, because of declining real estate values,” said Rob Teel, vice president of global solutions at real estate software system provider Yardi Systems Inc. “Owners and investors want to know why. They also want deep analyses that will help them see their assets through difficult times. That’s been driving real estate companies to integrate into a single software stack.”
Another factor driving systems integration is the expanding universe of CRE ownership, and their expanded interest in accessing uniform data. As increasingly complex ownership structures evolve, so do the cases in which information has to be distributed among multiple parties with an interest in a portfolio, such as major investors or JV partners. In the past, such parties might have been content with a summary of data from a managing partner, but as computing power has become cheaper and more efficient, their demand for entire buckets of data has grown— the better to do their own analyses of what’s going on with the portfolio. Integrated systems facilitate this flow of data.
Proponents of integrated systems explain that they provide better information to their users, thus empowering them to make better decisions in these difficult times. “Building an integrated backbone is customizable user interface, portfolio accounting and performance data, but it also has features suitable for operations in a number of countries. The system can do value-added tax, or VAT, processing, multi-currency conversion and local language invoices, among other things. “All future investment programs in the U.K., France and Germany will be put onto the system as they come online,” explained Chris Boatfield-Bell, financial controller for European funds at CBRE Investors.
Another example of the successful use of an integrated software sys- tem involves the state of Missouri, which oversees about 30 million square feet of owned and leased properties. The state determined that it needed an integrated, Web-based system for tracking and optimizing its inventory usage and billing, work-order management and energy-efficient initiatives, among other things. It selected Archibus to set up the system.
The state now uses an integrated suite of Archibus real property and lease management, space management and building operations management applications. Since the adoption of the system, the state has realized a variety of benefits, according to David Mosby, Missouri’s director of facilities management design and construction, such as more than $10 million in annual savings from improved billing, space important, because you need the collective effort of all the specialties within your company working on the same page,” said Wise Cho, CFO of Archibus, another specialist in real estate software systems. “That’s not only more efficient from an IT perspective—instead of having multiple solutions to update, there’s only one—but it also fosters the optimization of real estate assets,” both in financial terms and in the best use of physical spaces.
“An integrated system puts the same data, say about occupants or leases or other useful information, across multiple functions,” explained Michel Theriault, principal of Toronto-based facilities and property management consulting firm Strategic Advisor. “Certainly that can improve operational efficiencies, since the data is accessible without mistakes of re-entry or translation from one system to another.”
In an integrated environment, some species of CRE data are more complicated to analyze than others, but the tools now exist for effective analysis, said Teel. “Financial information is fairly straightforward, while lease-level data and KPIs (key performance indicators) are more complicated,” he noted. “But with current systems, it’s possible to drill down into your data to a very granular level.”
Large financial and tech companies have long been adopters of integrated software systems. More recently, large commercial real estate firms have been, as well. For instance, investment management firm CB Richard Ellis Investors, which has a complex web of investment programs and joint ventures in various countries, approached Yardi when planning an expansion into the United Kingdom and the rest of Europe. The company’s goal was to implement a single global system that would allow it to report seamlessly across continents.
For that purpose, the company picked Yardi Voyager International, which combines property and portfolio management in a real-time, Internet-based system. As befitting an integrated system, Voyager International provides information access from a centralized database, a utilization and lease management. Also, the government of Missouri has already been able to eliminate about 300,000 square feet of leased space, also at a savings.
While CBRE Investors has succeeded in its effort with a sprawling transnational portfolio and the state of Missouri with its midsize yet complex portfolio, the jury is still out on whether companies of any size could benefit, even much smaller ones.
Consultant Theriault is not so sure. “A relatively small company might not need all of the modules that a fully integrated system provides,” he observed. “If you only need one or two functions, it might still be best to go with a standalone software package. The important thing is for companies to get the software packages they need, and not pursue integration for integration’s sake. While integration is an ideal and the right solution for some companies, for others it would be overkill.”
Theriault added, however, that there really isn’t any data on how large and complex a portfolio has to be for a real estate operation to benefit from integrated software systems. “Each case is unique,” he said. “It’s a judgment call for management, after consulting with the IT department.”
On the other hand, Cho believes that even small commercial real estate companies can benefit from systems integration. “The systems can be designed to meet the needs of an owner or manager with only a handful of buildings,” he said. “And as information technology becomes less expensive, I believe that integrated systems will be the norm in the industry for just about everyone.”