Football coaches have an easy life. They have eleven men to guide and coordinate, and the greatest distance between them is about 100 metres – at most. That is the size of a football pitch, clearly arranged and easy to manage. But what if the players were located all over the world? And if there were not just eleven of them, but maybe 100? And if they were not only footballers, but also swimmers, rowers or cyclists – different athletes with very individual training needs? This, in fact, is the task facing managers of large real estate portfolios. An office building here, a hotel or a shopping centre there. In London, Paris or Barcelona – scattered throughout the world, with completely different characteristics and subject to completely different conditions. A manager has to be able to maintain an overview, and this is where modern computer systems come in: they supply all the information necessary on demand.
After all, real estate ceased long ago to be simply real estate. The rules governing an office building in Frankfurt/Main are different from those that apply in London. Take leases, for example: for commercial real estate in Germany they generally run for five to ten years, but in Britain they tend to be longer. If a data-management system gives prompt notification that a lease is coming to an end, this offers the manager the opportunity to find a new tenant at precisely the right time, or to negotiate with the existing tenant on an extension of his lease. The same applies to the level of the rent or the building’s condition. One building may just have obtained a LEED certificate, which proves that it is state-of-the-art in sustainable construction. The other may date back to the 1980s and need to have its energy efficiency upgraded. In short, this means that managing property is also, above all, a matter of managing and controlling data.
In the past, property data were recorded on paper and index cards, and stored in files and drawers. Today, they are in bits and bytes, on a digital master data sheet. Modern data-management systems ensure that information can be updated easily and is always available. Data that are available digitally help in managing global property portfolios efficiently. Appropriate data rooms, for example, have to be provided throughout a property’s life cycle, centrally managed and standardised. Data management is also essential to ensure that transactions and lettings are conducted profitably and efficiently across national borders. “This is the only way to achieve competitive performance in all funds and a durable, top-class international standard for processes”, says Heiko Beck, Chief Operating Officer and Member of the Management Board at Union Investment Real Estate GmbH.
Two fundamental factors are making such technological upgrades necessary at property investment management companies. The first is parliament, which is constantly making new demads on property managers. The second is that the funds being managed are becoming increasingly international, with assets across more and more types of use. In addition, for a long time now, whole real estate packages are being bought and sold, not individual properties. Every one of these transactions has to be painstakingly prepared and completed. It is a long time since this could be done without specialised IT in the background, helping managers record data and prepare comparisons. What is more, the use of data-management systems is being fuelled by ever-changing demands relating, say, to the sustainability of a property investment. What, for instance, is a building’s structural condition, and where may potential for optimisation be lying untapped? The aforementioned data room “is the right place for everything that describes a property, its value or value-relevant matters, and opportunities and risks”, explains Beck. In other words, it is a digital collection of information relating to a specific subject. Mr Computer, could I hand this over to you now, please? If only it were that simple.
A data room is the right place for everything that describes a property, its value and opportunities and risks.
Clear rules for service providers
Not everything can be solved with bits and bytes. “In the real estate business, there are still many things that have to be done by hand”, says Clemens Schuerhoff of the investment consultancy company Kommalpha. “There is no automatic price-measurement system for real estate and also far less data than classic asset managers are able to access. But the importance of EDP is growing, thanks mainly to parliament with its increasing demands for reporting.” – “There have been quite a few developments in the past ten years”, notes Sascha Donner of the Real Estate Advisory Group (REAG), but there is still some way to go before all of the competitors have reached the same level. “Data-management systems are now widely used for managing existing properties, and some large portfolio holders in particular are grappling with these systems and taking them very seriously”, says Donner. Smaller investors and project developers are usually not quite so far advanced, he reports.Thomas Beyerle, Chief Analyst at the Catella property advisor, agrees, saying “property transparency has now established”. Nevertheless, there are still sometimes shortcomings at the interfaces. “It is not so much about the integration of Excel into SAP, but more about the data rooms, which have to be synchronised between sender and receiver.” This is because everybody involved with a property needs to have access to the data room.
But how do different computer systems, belonging, for example, to an investment management company and a property manager – commu-nicate with each other? Both parties may have state-of-the-art systems, but that is of little use if they cannot understand each other. In practice, the rule is generally that one party sets the direction and the other one follows. “Ultimately, a service provider must and will always do what the client requires”, says Beyerle. “Even so, clients are also struggling in the absence of market standards.” The lack of such standards is not merely annoying – it can also be very expensive. “A REAG study suggests that in the case of package deals, where the sheer scale means that transaction- relevant documentation is often prepared with less attention to detail, 10 percent less has been paid as a result of poor-quality data”, says Sascha Donner. “On a deal worth hundreds of millions, that is quite a lot of money. However, even when preparing smaller transactions, poor-quality data can cause frequent purchase-price adjustments and generally avoidable frictions in the transaction process.” Partly for this reason, Union Investment concludes“clear service level agree-ments” with its external service providers, as Union Investment COO Beck explains. “We ourselves have installed verification routines for assessing quality.”
A matter of standards
The advantages of data management can no longer be denied: market opportunities arising at short notice can be exploited more quickly, risks stemming from inadequate transparency are reduced, processes between business partners are shortened, and greater cost efficiency is achieved. For this reason, universal standards remain the industry’s goal. One body working on these is the Society of Property Researchers (Gesellschaft für immobilien wirtschaftliche Forschung, Gif). The society could define what is to be included in systems, and how. But it could take some time before an industry standard is truly developed, Beyerle thinks. Also, even the best data-management system is only as good as the data fed into it. Without timely, continuous and comprehensive data maintenance, the information stored will quickly become out-of-date and will no longer be useful for making decisions. But how are real estate data to be selected, collected and kept up to date?
terabytes of storage, or three times 1,024 gigabytes – is what Union Investment needs for all its data.
A special issue in 2011 of the PMRE Monitor – the acronym stands for Process Management Real Estate – noted that real estate companies record open-ended leases in very different ways. Some give a notional end date in the year 9999, others give no date at all, while still others choose their own approach to termination. A human being can disregard these variations, but computers need fixed rules. Accordingly, data-management systems are not yet in use everywhere – a state of affairs diagnosed by the latest issue of the PMRE Monitor for 2014. This is good for a property management company such as Union Investment, which launched its ImmoDigital system at an early stage and is already working on improvements to it. It is planned to include further external service providers in the future. Improvements also have to be – and are indeed being – made day-to-day. The company’s rivals are also getting active now. According to PMRE Monitor, use of these systems across the industry is expected to rise from 14 to 21 percent in the coming years.
billion euros is the value of Union Investment’s global real estate portfolio.
Help is being sought not only through standards but also from quality certification. “As a rule, the Anglo-Saxon countries are always a little further advanced”, reports the REAG expert Sascha Donner. For instance, there has for some time been an international standard in the industry for the exchange of real-estate-specific data, developed by the US Open Standards Consortium for Real Estate (OSCRE), a member-led, non-profit association of property experts. However, Donner adds, a true seal of approval for real estate data rooms that would indicate their quality level at a glance has not yet been established in the market. “To close this gap, the Real Estate Data Room Certificate, or REDC, was recently developed in Germany as a unique seal of quality for certifying the most important factors in a data room”, he reports. Above all, he says, these are data quality and the IT or the data room platform – but also, for example, the processes underlying them or the issue of compliance. The expert describes the benefits in this way: “Greater transparency in this area enables users to make a better assessment of what they are relying on.”
data rooms at Union Investment connect 320 properties around the globe.
The reliable and standardised use of data is likely to gain further importance in the future, especially where the priority is to benefit from the immense quantities of data that are generated daily in the digital age, for which the term “big data” has become established worldwide. “The expression ‘big data’ has become fashionable in the real estate industry”, notes the IT expert Donner, who goes on to explain the distinction between this and traditional data management: “The term ‘big data’ means the processing and evaluation of unstructured data, whereas in real estate administration and transactions we are usually dealing with structured data. ”However, he adds, “big data” are becoming attractive to real estate companies when forecasting is involved: for example, projections of how people will want to live and work in the future and how this will affect the development of urban areas. This will have an indirect impact on risk management for property investments. The industry is likely to need to deal with the issue of data management for some time to come. After all, no sooner is one challenge resolved than the next arises.