Building & Facilities Operations

As the summer winds down and we begin to brace ourselves for the uptick in activity come September, I came across this piece in R&D.com about scientists at MIT using a virus to assemble more efficient, more green batteries.  The problem with batteries is a vexing one: in order for our economy to move beyond petroleum (particularly for transport), which has incredibly high energy density, is inexpensive and easy to transport, we need to find a more efficient way to store electrons.  Electrons are weightless, but conventional batteries are not; hence the problem.

‘”Using M13 bacteriophage as a template is an example of green chemistry, an environmentally friendly method of producing the battery,” Allen said. “It enables the processing of all materials at room temperature and in water.” And these materials, he said, should be less dangerous than those used in current lithium-ion batteries because they produce less heat, which reduces flammability risks.’

Amazing.  Now I know that technology is not an unalloyed good and that progress should not be embraced without question, but I do find it remarkable that to read about things that researchers are working on today, that may only begin to affect society 10, 20, 30 years hence.  The Internet was conceived of in 1973, rolled out in 1983 and really only began to shake things up in the late ’90s.  The transistor was invented in the Bell Labs in 1947 but it was its minaturization in an integrated circuit in 1959 that really accelerated change. And then powered the personal computer (and the Internet).  The rest, as they say, is history.

I was intrigued to read an article in the New York Times the other day about how law firms are beginning to offshore some of their clerical processes to India in order to drive down costs.  They are doing this largely because their large corporate clients are insisting on cost reductions, not because they are particularly forward thinking.  Why pay for a New York based associate to copy edit a document at $250 per hour when it can be done for 1/5th of that rate by a double graduate in India?

Now, large corporate law firms are pretty darn conservative and not organizations that adapt to change easily, so the fact that this is happening is an indication about how much sectors of our economy are likely to change over the next 5 – 10 years.  We have all gotten used to hearing about manufacturing jobs being shipped overseas; those of us in the technology space know that the same is happening with jobs in our space, but this is an indication that other sectors, previously thought to be immune from the trend, will be affected.

This got me to thinking about property operations.  On the one hand, folks in this sector all provide services that are site dependent, like a hair stylist or plumber – until we figure out teleportation, you are going to have to pay a real live plumber to come and fix your dripping faucet: no way to offshore that service – so it should be largely unaffected by off shoring.  On the other hand, some of the property and asset management teams that I work with spend a lot of time on fairly low level clerical activities: copying, faxing, moving information from one silo to another.  These activities can (and will be) off shored.  Given the relentless downward pressure that owners put on asset and property management fees, this change may be forced on the property operations sector by its customers, as it is in the law profession.

There is a bright spot in all this: property operators that figure out how to streamline clerical processes and focus on providing their clients with higher value services will prosper.  Some of this value-add comes through using technology, like Building Engines‘ web based operations platform, to improve customer service, increase data liquidity and reduce operating costs.  I have run into a few that have made this a differentiator and who tell me that their clients are beginning to see it as a significant benefit.

A number of recent news items have struck me as portents of the increasing pace of technological change that we are seeing.

This news item in the Wall Street Journal yesterday revealed that Amazon’s eBook sales outpaced hardback book sales over the last three months.  Specifically, over the last month, the online retailer sold 180 Kindle books for every 100 hardcovers that it sold.

Meanwhile Tech Crunch notes that Pandora, the online streaming music provider, has surpassed 60 MM users and is  ”…adding users faster than ever.”  Pandora assembles playlists based on a user’s taste and can be played over smart phones, making them like the old transistor radios.  The article points to Pandora capturing 100 MM users sometime next year.

Finally, in “Spending Soars on Internet Plumbing”, the Wall Street Journal notes that IBM’s server sales jumped 30% in Q2, after rising 36% in Q1 of this year and quotes the research firm IDC as saying that it expects capital spending on cloud computing – all the hardware that goes into supporting web based activities, to grow at 27% annually through 2014.

“Any sufficiently advanced technology is indistinguishable from magic.” – Arthur C. Clarke

The commercial real estate is not an industry that adopts new technology aggressively; in fact I think you could say we are late adopters.  As someone who works in the software space, lives in Silicon Valley and serves the real estate community, I am especially aware of this.  However, the industry is changing, even if slowly.

I was reminded of this when I had lunch recently with a friend with whom I had worked on large portfolio acquisitions at the end of the last real estate bust, almost 20 years ago.  Hard to believe but back then a big number was $250 BN (the total cost of the S&L crash to tax payers), which seems like chicken feed now.  Our largest deal was in the $750 MM range and we thought it was huge, absolutely huge – that now seems almost laughably small.

We sent teams of underwriters around the country looking at assets and assessing their value.  Each was given a map of his/her target city, with colored dots locating specific properties.  Local market knowledge was difficult to come by – you had to work the phones hard to find brokers who would talk to you about the market and divulge any of their hard-won information.  Values were calculated on paper work sheets using a pencil and simple cap rates (the underwriter could us a calculator if necessary but the “real men” did the calculations in their heads.)

We had big, clunky cell phones that were so expensive they could only be used when urgent.  Our SWAT team on analysts ran Project and Argus on clunky, green screen computers that seemed to be constantly choking on the data they had to crunch. Talk about illiquid data!

So, things have changed some in our industry.  One of the changes is the radically increased information liquidity.  It is just a lot easier to figure out who has leased what space at what rate or what price a property has traded at now than it was 15 – 20 years ago.  This may be part of the reason that the crash in the CMBS market we were all expecting, didn’t happen.  As this Fortune article details, the market is bumbling its way through the downturn without completely collapsing.

Information is often still stuck in silos, but it is a lot less stuck less often than it used to be.  We may curse email and the fact that our Blackberries have eliminated whatever downtime we used to have but they have radically improved communication.  The use of fax machines is  declining precipitously and, although we still manage a lot of paper, we are learning that scans of documents are much easier to manage.

It is time in this blog post for me to hold forth on what the future will bring, with respect to real estate and technology.  I think the biggest driver of change over the near term will be peoples’ expectations: folks now expect to be able access real time data from multiple properties easily, summarize it and analyze it and be able to view it anywhere. Web-based operations and maintenance management systems are now offering one solution. Interestingly, this expectation is being driven by their experience as consumers – real time data about flights, purchases, shipping and financial transactions is now almost ubiquitous in the consumer world.

The second big driver of change will be a generational shift: the next generation of workers, folks that will take our jobs, is growing up in a data-rich, highly connected environment.  They will be comfortable with and will expect access to highly liquid property data; silos will not be an option.

This is all going to take time- longer than folks like me expect, but faster than you might imagine. And its effects will be profound.

The Internet is changing the way we interact with one another and the way that companies communicate with their customers. In the software world, this brave new frontier is known as Social CRM whose power is described in this white paper by the Altimeter Group.  The idea is new enough that Wikipedia doesn’t have an entry on it.

Simply put, companies selling products and services (e.g. the owner/manager of a property leasing it to tenants) used to manage communication with their customers in a fairly linear, systematic, top down manner.  Back in the day, the building manager would create a form letter about a specific issue and mail it out to tenants.  Then, thinking that regular contact might be a good thing, the manager created a newsletter and mailed it out too.  Along came email: the building manager generated the same documents in electronic format and sent them out to the building tenants.

This is changing: the social and collaborative nature of the web means that companies no longer drive communication and are losing control of conversations with their customers: if I have an problem with a piece of electronic equipment, I no longer call customer service, I Google the issue.  I may end up on a forum with all sorts of candid (and not all positive) comments about the equipment in question; its supplier controls none of this.  Sounds a little anarchic, a little chaotic.  Like the web.

One of our clients owns and manages a major, class A office property in a secondary market.  A while ago when you Googled the property, the first item that popped up in the search was a very negative review of its parking by a consumer on Yelp, the crowdsourced review web site.  Not a good way for someone to find your property.

Owner/managers will have to learn to manage social media and leverage the technology to communicate with their customers (tenants).  Or be overwhelmed by it.

1. Google is a champion of individual liberties.
2. Only Apple truly cares about its customers and caters to their needs.
3. The Internet will connect everything everywhere taking data out of silos and increasing efficiency and liquidity

Real estate companies are not known for being highly collaborative; quite the contrary, most are run by deal makers whose transactional focus and sales orientation is about as far from a collaborative mindset as one can get.  Couple this with the fact that building teams operate largely autonomously and are physically separated from one another, and one can see how a culture with a “silo” mindset develops.

Collaborative organizations benefit of sharing information, strengthening company culture, developing best practices, driving innovation and improving efficiency.  Frost & Sullivan, a research and consulting firm has developed a collaborative index, with which it measured companies’ collaborative cultures against various performance factors.  Interestingly, the company found that a collaborative culture is highly correlated with higher customer satisfaction levels.

Web based software platforms like Building Engines enable collaboration by giving users a single place to look for, share, edit and store information about their operations, making it easy to communicate with other parties using whatever medium is most appropriate.  We recently set up a space within our application where property managers and engineers could share best practices, tag issues, or ask for input on problems.

As technology evolves and high speed internet access becomes ubiquitous, the use of collaborative software tools will expand.  You may think of Facebook as a time waster your teenagers spend too much time on, but it is a collaborative tool of a sort and is a harbinger of things to come.

Ah yes, it’s a lot like the weather.  A lot of folks talk about data, but nobody does anything about it.  We have only just gotten used to real estate accounting systems that actually, occasionally, generate reports that are useful, or have figured out that using Google desktop means we can actually search thousands of email to find that attachment we know that a broker sent us.  Now we learn that a tsunami of data is coming our way.  How are we going to manage it?  More importantly, why does it matter?  Maybe we can ignore it.

To give you some sense of how much data is being captured, and how quickly this is growing, a recent article in the Economist notes that Wal-Mart handles 1 MM transactions every hour, generating information equivalent to 167 Libraries of Congress, and this figure is growing.  And Facebook stores roughly 40 BN photos, that’s more than six photos for every human on the globe.

Facebook mined the data it captured about positive and negative sentiments in comments posted to the site and developed a graph showing our Gross National Happiness.  Thanksgiving and Christmas make people very happy. Valentine’s Day, though a commercial invention, seems to have a positive effect too.

Mining data, simplifying it, abstracting it, and generating actionable intelligence from it will increasingly be a essential component in every real estate operator’s toolkit.  Understanding how data can be summarized and displayed is a good place to start.  The master of this is Edward Tufte, whose book The Visual Display of Quantitative Information, is a great primer on how to (and not to) make data visual.

Interestingly, folks have been doing this for a while. Census data in the late 1800s was compiled into beautiful, hand colored and very elegant charts, tables and graphs, in a Statistical Atlas.  I am personally quite partial to the “Chart of Idiots”, which indicates that in 1890 more of these were men than women.

Real estate may be a little behind in this trend but not too far.  Ten years ago it was difficult to get solid information about a local market; today the Internet is awash with research reports detailing the inventory, vacancy rates, absorptions, asking rates and deals for any major primary or secondary center in the world.  Building automation systems, once the domain of the lead engineer or, more likely, the company that sold the owner the proprietary system, are being pried open, spilling out large amounts of operational data.  Energy will get expensive again and as it does, pressure will rise on owners and managers to collect, analyze and take action on large amounts of energy consumption data from their portfolios.

A consultant who specializes in unifying building systems, in making them “smart”, told me that while talking to a facility manager that looks after a large, Fortune 500 corporate campus, he learned that the campus’ building automation systems (it had multiple, closed systems as it had been built over several decades) generated  thousands of alarm events weekly about which the manager could do… nothing.  The facility manager had access to a lot of data, but because of siloed, proprietary systems, had no way to organize it, identify patterns or take action.  This situation, all too common in our industry, is beginning to change.

Tech heads like me are always trumpeting the latest development that is going to radically change the way you work, live, eat, sleep or shop and the visions come true (sometimes), often a lot more slowly than (ahem!) I predicted.

It was interesting to read about the 10th anniversary of the Dot com era (March 10th 2000), when NASDAQ peaked at 5,048.62, fed by the speculative hordes investing in companies like WebVan, Kozmo.com, Bid.com and Pets.com. Amidst all the hype there were some great ideas – Internet as TV (broadcast.com), virtual currency (Beenz, Flooz), free Internet access (NetZero, Bluelight), free online encyclopedia (Nupedia, the predecessor to Wikipedia) – whose timing was off by a few years.

It is easy to forget how much actually has changed in the last decade: in 2000, site managers rarely had dial up access to the Internet, let alone high speed access, now almost all do. Very few people in the real estate business carried smart phones – in those days Blackberries were for investment bankers – now, just about everyone from the lead engineer up carries a Blackberry, iPhone or other smart phone. Few of us worked on laptops then, now most of us do. We completely take email and instantaneous access to data for granted: data is still stuck in silos, but much less often than it was a decade ago.

If anything, change is accelerating, but we seem to notice it less. Cisco, the folks that provide most of the hardware that supports the Internet “backbone” has just released a router that could handle all the data traffic created by everyone in China simultaneously making a video call. Google has announced a marketplace for business applications: Microsoft absolutely owns the office productivity space but tools like Outlook are looking long in the tooth and their “siloed-ness” makes them frustrating to work with. In fact, a small software company called MainSoft is offering a way to integrate the two offerings, so that you can take advantage of the cloud while still working in Microsoft applications that you are comfortable with. Think of it as Sharepoint for your organization without all the hassles.

And innovation continues, even in a difficult recession; the workplace that your children graduate into will operate quite differently than the way yours does now and the way real estate is managed will see significant changes. Sometimes, it just takes a little longer for things to come true than tech heads like me want to admit.