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.

When it comes to technology, most people fall into one of two camps:  Either they hate it and shy away from change and advancement, or they love it, and they are always first in line for the upgrade or latest and greatest.  Personally, I try to walk the middle road and find a balance somewhere between the two.

Both of the philosophies mentioned above can be dangerous.  Resisting change and failure to embrace new technology is closed minded.  It is important to be open to new ideas and ways of doing things – generally these advancements improve the quality of our lives and ease with which we accomplish things.  If not for changes in technology we would still be sending letters by way of the pony express rather than email and sitting on the phone for hours to purchase airline tickets rather than doing it online in minutes.  Think about how you would have gotten money and directions to a restaurant 15 years ago.  I hope you got the money before the bank closed…

Racing towards technology and embracing change too quickly can have its downfalls too.  Unless you are a self-proclaimed early adopter and enjoying helping companies work out the kinks, sometimes it’s better to not be in the first round of people to try a new product.  Bugs and pieces not all working together properly can lead to time consuming trouble shooting and frustration.

Recently, a lot of people have been moving off local email clients like Outlook to web-based email like Hotmail and Gmail.  I tried this briefly myself, but found that I personally didn’t like some things about gmail.  I don’t like the way they index emails together.  I also think that it does not look professional when you send a work related email and it comes from kylemaikath@gmail on  behalf of Kyle Maikath. I’ve also experienced issues when accepting invites via Gmail – they don’t always show up on your calendar and that can be a real problem.

As a result, I’ve opted to stay with Outlook.  It works well for me and I am happy with its performance – less 1 item.  I really don’t like the archiving in Outlook.  .PST files can be gigantic and clunky and it’s tough to retrieve information from them.  I had problems about a year ago in which a giant .PST file crashed my computer and I lost everything.  Not fun…

I started to think that there has to be a happy medium between the two.  I started looking at Gmail again and noticed that there was unlimited storage.  And then the light went off.  I decided to continue to use Outlook for my day to day operations, but to use Gmail as my means for backing up.  This revelation led me to my current configuration:  Emails are received and managed using Outlook.  Emails are automatically deleted from Outlook once they are 3 months old.  Emails are automatically forwarded to Gmail where they are stored indefinitely.

The configuration has worked out great.  I am still using the interface and app. I prefer for email, but I am also taking advantage of the unlimited storage of an online email client.  In the end, a combination of new and older technology worked best for me and allowed me to do everything I wanted.  Best of both worlds!

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.

We are all suffering from symptoms of information overload. The daily onslaught of more and more data means that some of it will inevitably fall through the cracks. You may file away 25 e-mails one day, and overlook ten other important ones. You may communicate important preventive maintenance data within one building and neglect the rest of the portfolio.  Let’s face it, there is only so much time in the day.  Every day we make hard decisions on which people, activities, and processes receive a piece of that “time” pie.

Because of this, the ways in which modern real estate processes interact are increasingly complex. Facilities and Operations Teams, business systems, and data must work seamlessly together in order to deliver on the promises of optimal productivity, improved occupant service and satisfaction, and quicker decision-making time frames.  A good workflow must allow for that information to seamlessly pass between people, systems and…brace yourself you’re not going to like this one…portfolios.

More importantly, a good workflow allows you to “automate the mundane.” A phrase we like to use a lot here at Building Engines – and not just because our operations and maintenance management system allows you to do it, but because we really believe it, is that people in the real estate operations business are always in overdrive and always putting out fires.  Once you get your workflow and processes in order, you’ll be amazed how much extra time is freed up for more valuable activities.

Building Engines will be hosting a Webinar in early August where we will tackle best practices for handling large teams, workflows that “automate the mundane,” and other valuable insights for increasing productivity and managing data across your organization.

Now, add that to your follow-up cue.

“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 economy’s health is returning and, like young leaves in springtime, new jobs are beginning to bud.  Yet, the recovering economy is not in steady bloom.  The detritus of a long and blustery economic winter litters the real estate topography, shadowing the sun of increased demand.  The recovery has its good days and its bad days – its strong weeks and its weak ones – like the intermittent cold rainy mornings and warm sunny days we all experience when life returns in April and May.   However, like summer, recovery is inevitable.  Yes I said it, inevitable.   The recovery will happen – faster in some markets, slower in others – but those that prepare for it will prosper first and profit most.

The world of commercial real estate is caught in this seasonal economic struggle- typically two full quarters behind the highs and lows of the broad economy.  Today, cap rates are slowly compressing with perceived property values increasing in advance of any real return in demand.  Businesses are beginning to hire again, but only in certain sectors where growth is fueled by the promise of returning economic health. The blossoms are held back by debt struggles abroad; tragedy in the Gulf and aftermath of a long, dormant economy.

Tight budgets and cold economic winds have forced owners, managers and tenant occupants to use creative survival tactics.   Smart commercial real estate companies are reaching out of the shadows and into the sun with concentrated marketing efforts that flag new and aggressive opportunities for their prospective tenants.   A cost efficient reach into the sunlight through new, web-based identity tools, real estate centered search engine optimization and building awareness tools are an excellent and cost efficient means for supplementing the traditional broker channel.

New economies bear new tools and new methodologies for doing business. Proactive owners fearlessly invest in these ideas, enhancing their assets’ identities and significantly improving the chances of swift and prosperous recovery.   They are leveraging powerful new technologies that have emerged from lean economic times.  The promise of new growth will come to those who act.  Those that wait may confront a late and deadly Frost.

Nature’s first green is gold,
Her hardest hue to hold.
Her early leaf’s a flower;
But only so an hour.
Then leaf subsides to leaf.
So Eden sank to grief,
So dawn goes down to day.
Nothing gold can stay.

Robert Lee Frost

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.

In the arcane world of tax law, there is an ogre of a rule that has choked a few deals to death.  The American Institute of Certified Public Accountants Statement of Position 97-2 (“SOP 97-2”) provides that a company cannot report revenue as realized (earned) until it delivers the product or service.  In the SaaS world this rule requires that vendors, when charging a blended fee for access to a software systems, show vendor-specific objective evidence (“VSOE”) of value.  VSOE is a method for determining the individual value of each invoiced item within a contract to accurately recognize partial revenue before the entire contract is fulfilled.  Ugh!

So, when a SaaS company sells licensed software on an annual contract, the fee must be separated into its various parts (license, set-up, service, hosting, etc.) and recognized ratably over the entire year.  The revenue collected must match the timing of the service provided for the vendor to accurately recognize the revenue according to GAAP and SOP 97-2.   Hence, the first month’s revenue for the license fee can be recorded as current revenue, but the later month’s revenue must be reported at deferred revenue.

So why does that matter?

Take the case of an unnamed publicly traded SaaS company seeking to sell licensed access to its enterprise-level product at hefty price point.  The sale to a very interested and willing prospect was likely to occur near the end of the sales quarter.  Hobbled by the laws of revenue recognition, the SaaS vendor could not “recognize” the fat tranche of newly booked revenue in the near term without providing VSOE.   Assuming the SaaS product was well designed and easy to set up and use, VSOE for revenue occurred as the new customer accessed the system over time – consequently delaying revenue recognition until later quarters.  Not good news if you are publically traded company when end-of-quarter sales numbers directly affect your market value.

Seeking to front load that revenue and, thereby, make itself look more profitable, the SaaS vendor chose to “locate” more of the overall revenue in the near-term by front-loading the professional services fee and discounting the ongoing license fee under the argument that the services required were very important to a successful launch.  To warrant a high fee, the vendor jacked up its per hour pricing.  The prospect balked.  It’s understanding of the product, realized through many demonstrations, was that easy to deploy and easy to use.   The salesman had used that premise all during the sales cycle.  When queried by the prospect about the large professional services fee, the vendor contradicted the core value upon which it had originally interested the prospect – ease of deployment and use – explaining that the start-up might be more complicated than first realized.   No matter how hard the prospect pushed for a clear explanation or a reduced professional services fee, the vendor could not explain their reasoning and would not reduce the professional services fee to a palatable number.

Why?

The vendor would not reduce the fee because management was more interested in pumping up the recognized revenue number within the quarter than in delivering a valuable product. The result was a lost deal; an unhappy willing-and-ready prospect; a ticked off salesman; a lower overall sales number for the SaaS vendor, a lower quarterly earnings report; a lower stock price, and all the attendant bad news and sorry consequences that go along with a sale lost for all the wrong reasons.   Bad tax rules spawn bad business practices.  Who can blame management for wanting to report a full sales number?  Who can blame the customer for wanting a reasonable explanation, even if the overall cost would be identical?

Even with ogres like SOP 97-2 lurking in the shadows, the moral of this story is simple:   Provide value to your client by producing the best product at the best price. Worry about your revenue later.

A great phrase like that must have been created by someone bright, very bright. Indeed, a recent article by McKinsey uses this phrase to describe the change that is being wrought in the way that data is captured and networked.

“But the predictable pathways of information are changing: the physical world itself is becoming a type of information system. In what’s called the Internet of Things, sensors and actuators embedded in physical objects—from roadways to pacemakers—are linked through wired and wireless networks, often using the same Internet Protocol (IP) that connects the Internet.”