Before determining how to develop a data strategy, it’s worth considering if one is even necessary. Most real estate companies already leverage expensive tools such as Costar and other market reports. Many certainly put a lot of energy into Excel to model, underwrite and manage properties and portfolios, but is it necessary to utilize one’s own data to develop further insights?
Part 2. Why Does it Matter?
Real estate owners are all about the bottom line, so it’s no surprise that some may balk at spending too much additional time on data mining and analysis. They’re not wrong… spending time and effort to utilize data doesn’t make sense in some scenarios if there’s no sufficient return on investment (ROI).
So, how do you know if it’s worth it? What value can you actually glean from your data? Let’s take a closer look at some of the value your data may hold:
- Trusted Operating History: Having all historical financials in one place allows the use of property data to inform current performance and see how similar properties should be performing. This data can be used to identify and track seasonal trends, the desirability of a specific unit type at a particular property and other key drivers. These powerful tools can enable informed decision-making, such as a concession strategy or underwriting a new acquisition in the market with trusted operating history instead of a seller’s financials.
- Benchmarking with Other Properties: Reviewing portfolio data in one centralized location allows owners and managers to develop expense benchmarking, track portfolio performance in different markets, and set accurate budgets and underwriting pro formas.
- Accurate & Consistent Reporting: Most managers and owners are required to provide some level of reporting to customers and investors. Pulling reports from different systems in different formats can result in human error and inconsistencies in data. This inconsistency creates a situation where inaccurate reports are delivered to key stakeholders. A data strategy allows the generation of accurate, consistent reports for maximum accountability and visibility.
- Predictive Analytics: You can find patterns in your data to identify risks and opportunities.
- Transparency: By its very nature, real estate is an illiquid, privately-held investment with little to no public reporting requirements. But the requirements that provide transparency in the public markets are the same forces that have accelerated the use of big data in many industries. Data asymmetry has been the hallmark of the best investors in real estate — “We know what everyone else doesn’t know, and that’s why we are the best!”
So, as you can see, there are some very compelling reasons for real estate owners and operators to devote time and resources to proper data collection, mining and analysis. It can be a valuable tool in informed decision-making using a fact-based foundation of good data. And industry leaders are beginning to come around. For example, as shown in a 2021 report from the Urban Land Institute (ULI), 70% of members surveyed indicated that data analysis will play a significant role in their strategic goals in the foreseeable future.
Up next — let’s solve this bad data situation!