17 January 2012

Real Estate Industry Offers Huge Entrepreneurial Opportunities Using Information Technology

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Real Estate Industry Offers Huge Entrepreneurial Opportunities Using Information Technology

Summary:

How big is the real estate industry? Did you know it is larger than all investments in the stock market? So, given its enormity, what entrepreneurial opportunities exist for using geospatial technology?

Most people don’t realize how huge and pervasive the real estate industry is – certainly one of the dominant sectors in every economy worldwide. In developed economies such as the United States, real estate assets exceed the value of all publicly traded stocks and bonds. And the world is still trying to recover from the subprime mortgage crisis of several years ago.

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Figure 1

*** It’s estimated that the investible commercial Real Estate Assets’ value in the EMERGING COUNTRIES will increase to $30trln by 2020 from $10trln in 2009. ***

 

Not surprisingly, the real estate industry is not only huge but also diverse. When asked about who works in real estate, many people will cite brokers, appraisers, developers, mortgage lenders and a few other professions. In fact, the industry encompasses dozens of distinct professions.

The huge size and great diversity of the real estate industry has created and continues to create innumerable, specialized information business opportunities.

Encapsulating the Industry’s Magnitude, Diversity of Players and Adoption of Geospatial/Information Tools

It is useful to delineate the principal components and players in the real estate industry to have a full awareness of the industry’s scope and complexity. Both private and public sector organizations have successfully been using geospatial software and databases in their daily operations for some time. These organizations have developed marketing strategies and specific entrepreneurial opportunities. Figure 3 is a summary of technology adoption by prominent industry sectors.

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Figure 3

Notice that the vertical axis of the chart measures the percentage of the members of any given sector that have adopted geospatial/information technologies into their real estate operations. The horizontal axis indicates how many members each sector has. The “sweet spot” in the chart is the upper right corner, consisting of many players and a high technology adoption rate among them.

Zillow.com and Loopnet.com both had very successful initial public offerings (IPOs) within 10 years of their founding.

1 – Site and Property Selection: Efficiently Finding the Best Properties to Acquire

Figure 4 shows the organizational structure for site selection analysis. One typical, frequently used analysis progresses from analyzing real estate opportunities at the metropolitan level on down to the submarket level, then down to the trade area level and so on, until finally drilling all the way down to listings of specific properties for sale and rent.

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Figure 4

The right side of Figure 4 indicates the availability of demand-side, supply-side and other databases at each of the five geographic levels:

·        Demand-side databases include current and projected census-type estimates (e.g., population, income, education, age); lifestyle a.k.a. segmentation databases (PRIZM, MicroVision, Tapestry); consumer purchasing patterns, and so on.

·        Supply-side databases encompass not only listings of properties for sale or rent, but also market-level information on total inventory, vacancy rates, asking rents, net absorption, and so on.

·        Other databases consist of zoning, assesor parcels and other typical administrative maps; constraints (e.g., flood zones, earthquake fault lines, toxic waste sites); special areas (historic preservation districts, specific area plans); traffic maps, and a host of other considerations.

2 – Property Acquisition: Optimizing the Buy/Lease Transaction, Including Mortgage Underwriting

A maxim of the real estate industry is that the ultimate profitability of an investment is determined at the time the property is acquired. Accordingly, having found the best candidate properties, the focus of the next stage of analysis is on using geospatial technologies to obtain the best possible transaction. Figure 5 delineates three of the salient transaction components.

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Figure 5

 

3 – Ongoing Property Management: Maximizing Continuing Profits with Asset Management Methodologies

A commerical real estate investment is expensive, typically ranging from millions of dollars to even billions of dollars. With that much money in one asset, the owner or renter of the property is obliged to manage that financial asset for the highest possible return on investment (ROI). Yet ROI is not as widely and intensely pursued as you might expect, despite the availability of geospatial tools to maximize ROI.

To take one example, say a company owns its headquarters office building in a real estate market where office prices are projected to decline over the next five years; such forecast information is readily available from content vendors like REIS Reports. Rather than continuing to own an asset of diminishing value, the company should consider doing a sale/leaseback of the building and investing the proceeds in money-making activities elsewhere. The company remains in the same building, but shows increased profits.

There are factors other than “location, location, location” that are critical in real estate (such as timing), but unquestionably the myriad of location-specific factors determine every property’s value and potential. Because geospatial software and databases are all about location, they are incredibly useful in real estate decision making – far more so than any other technologies.

The proverbial bottom line is that sooner or later all real estate professionals will be actively using geospatial tools and databases, and very real competitive advantages are to be gained by embracing the technology ASAP.

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