Using Tenant Experience to Court Investors: Part 2

Real estate owners and operators can use cyber risk management programs as a value proposition with investors, say Deloitte’s Steven Bandolik and Jim Berry.
Steven Bandolik. Image courtesy of Deloitte
Steven Bandolik. Image courtesy of Deloitte

In last month’s column, we explored how important it is for commercial real estate firms to keep up with disruption in the industry and explored some ways in which owners and operators can leverage shifting tenant preferences to align new funding from CRE investors. But adapting to a rapidly modernizing workforce and leveraging partnerships with CRE fintech offerings are just two parts of the funding equation.

READ THE DIGEST VERSION

According to our 2019 CRE outlook report, increasing tenant centricity by reimagining the tenant experience is key to strengthening both tenant stickiness and investor valuations. This month, we’ll look at how data and cybersecurity can influence these critical stakeholder groups.

Unlock the power of data

It’s widely acknowledged that the volume of data globally is growing exponentially, as is the possibility for new analysis, insights and opportunities derived from that data. As tenant demand for smarter and more connected spaces grows, owners and operators have a chance to both deliver on that demand and demonstrate the business value that smart infrastructure data can have for tenants.

Technologies including artificial intelligence, and predictive analytics and Internet of Things platforms can harness data to help tailor existing or new buildings to suit changing tenant preferences and anticipate end-user needs. For example, as the remote workforce grows and companies diversify away from hub cities, owners and operators with a national footprint can leverage tenant data from across all properties—and integrate it with data inputs from other sources like smart city data, social media and more—to identify market trends that could help augment footprint and location strategies for current and future tenants.

Digging deeper into data is something that CRE investors want companies they invest in to prioritize too, with the biggest emphasis on using predictive analytics (84 percent) and business intelligence (83 percent) to make buildings future ready.

Cybersecurity policies as a value proposition

Jim Berry. Image courtesy of Deloitte
Jim Berry. Image courtesy of Deloitte

The number of cyberattacks, a byproduct of growing use of technology and data, is only expected to rise in the U.S., with the Federal Bureau of Investigation reporting a 47 percent increase in such crime in 2018 compared to 2017. Combating these threats requires increased attention from companies, and making smart investments is key. A Deloitte and FS-ISAC study found that non-bank financial services companies allocate roughly $2,800 per full-time employee or equivalent.

When it comes to real estate, cybersecurity is not all about securing physical spaces from these growing risks, as some may think. Tenants face real and persistent threats from hackers, who can infiltrate building management systems to inflict physical harm, or networks to steal data and impact tenants’ business efficiency, output, financials and even reputation.

Owners and operators can not only strengthen cyber risk management programs to help tenants feel better about this growing risk climate, but they can use them as a value proposition with investors too. CRE investors weigh tenant risk, including industry concentration, as a top factor when weighing CRE investment decisions, and consider damage to reputation (41 percent), financial theft/fraud (37 percent) and theft of personally identifiable information or PII (35 percent) as the top three impacts of cybersecurity breaches at investee companies.

Yet, most investors (66 percent) are only somewhat satisfied with CRE companies’ preparedness to guard against cyberattacks. This indicates there is opportunity for owners and operators to broaden their risk management agendas and begin operationalizing cyber risk strategies in order to minimize these concerns for future funding considerations.

At the end of the day, identifying ways to get an investor interested or on the hook to commit more capital to CRE companies doesn’t need to turn into a complex equation. Owners and operators just need to remember one important rule and the rest will follow: Tenants remain a central part of unlocking value and attracting capital in today’s real estate markets.

Steven Bandolik is a managing director with Deloitte Services LP and a senior leader in Deloitte’s real estate practice. Jim Berry is a partner with Deloitte & Touche LLP and the leader of its U.S. real estate practice. He has more than 34 years of experience serving companies in the real estate, construction and hospitality industries.

Read the September 2019 issue of CPE.