14 Feb 2023
It’s also true that prevailing post pandemic conditions continue to create altered work patterns that are busy changing values and paradigms in the commercial office landscape as we know it. Residential real estate is facing similar challenges in determining property values and exposures in a rapidly changing environment, both economically and geographically.
The landscape around us is changing. Shifts in market conditions have a large impact on the value of properties and their liquidity, or value at market price. Over the last two years, liquidity has become indispensable in determining the true value of real estate assets for portfolio managers. Today, market fluctuations and factors influencing multiple CRE asset classes are all present to create liquidity risk among different property types. In days past, investors were aware that only certain properties would be subject to liquidity risk, but that’s no longer the case as multiple downward economic pressures have the potential now to erode the value of nearly any property type or portfolio.
The rise of the secondary marketplace presents unique challenges in data quality and analysis. The value of mortgages on the secondary market depends on their risk and potential return. As market conditions change, accuracy in determining the exposure or quality of loans and risk is crucial. With or without a volatile market, a lack of transparency in bundled loans is best handled through a technology that can provide the most accurate and up-to-date view on the entire loan package and its contents.
Traditionally, property listing websites are the most widely accessed source of information but contain missing information where the prices are not reflected accurately. The property’s asking price and the actual price can be affected by non-recorded issues and negotiations that have not been reported from previous property transactions. Private markets are especially susceptible to off-record activity and neglected records as those involved in transactions often rely on in-house legacy methods for decision making and are not necessarily keeping the public records up to date.
How much are investors taking a chance when they don’t have information on a portfolio? How do you reduce the unknown and how do you manage downside risk and increase returns when buying portfolios? How much time do you have to gain a good understanding of the portfolio and risk involved? These are all important questions to ask as NPLs and troubled loans will be coming to light in a mild recessionary environment. Real estate also stands to lose substantial value if rising interest rates trigger covenant agreements with lenders, forcing re-valuations.
Proptech was born for such a time as this, where the bottom line must be solved quickly and accurately for investors. In the past, it may have taken as long as a month or more to complete the data aggregation and analytical work necessary across portfolios. The data being manually derived also came with much less degree of certainty. Today, by using property technologies, acute problems can be reduced and solved with greater accuracy in a matter of hours or days. Without the use of new technologies, these projects could potentially take months to complete.
The value of the Proptech sector cannot be overstated. Core processes that have been traditionally relied on by property management and real estate investors can be exponentially improved by using technologies. The real estate industry is in a state of flux as office models and paradigms are being shifted. Successful CEOs must seek to be exceptionally futuristic in keeping an eye out for new technologies that solve everyday situations. Technologies are able to increase the speed and scale for key business processes. With that said, the CRE world is undergoing a revelation that comprehensive business intelligence and analytical platforms have become necessary for nearly all industry participants.