01 Nov 2022John Macdonald

Real Estate Systems: To buy or to build?

Any organisation holding many large, granular secured NPL portfolios of real estate assets will know their company needs technology to make processing them run as efficiently as possible.

In fact, technology in this scenario should be considered mandatory. That’s because they are sitting on heavy losses and CEOs need to be able to manage assets quickly and efficiently to recover as much as possible.

This begs the question: how many systems are currently in use to manage real estate portfolios, processes and workflows? I’ll share a hint: too many!

When searching for a suitable technology solution, a CEO looking at the market might also consider whether it’s worth developing their own in-house solution. But before they do, they should be asking themselves the following questions…

  1. What is the problem you are trying to solve? 

Typically, banks trying to manage real estate assets as a result of restructuring their non-performing loans will want to run down their stock of real estate whilst achieving a higher rate of recoveries. They will also be wanting to cash out as quickly as possible (either through retail sales or portfolio sales), all whilst achieving a higher price for their assets and portfolio sales.

In doing so, CEOs will likely be looking to manage their existing data to make it accessible and more valuable. Even where good quality data is kept, it’s rarely well organised so that efficient use of it can be made. There are often duplicate sets of fragmented data that never get consolidated into a single source of truth, resulting in a perpetual information disparity that affects the bottom line.

Another issue is the speed of recoveries. An efficient collaboration process would ensure that the next person in the workflow is informed and ready.

  1. How unique are your needs? 

Another question CEOs must ask themselves is whether they have researched the market to see if a solution already exists – one that could monolithically integrate all real estate activities.

There are a wide range of solutions available on the market which will do what you need with some configurations for your own company’s needs. To this end, there’s little point in creating something from the ground up internally when a lot of the heavy lifting has already been done.

My question to those wanting to build a system from scratch, would be: can you prove it is necessary and will deliver unique capabilities for users? If the answer is yes, then developing internally could have a place but only where it gives a proprietary advantage.

  1. What is the skillset of your team? 

In order to create and maintain a functioning system, in-house resources are required. This means enough developers and capable experts to take on responsibility.

This poses a problem. Banks managing real estate assets by restructuring their NPLs, will likely only want to focus on their core speciality – increasing the value and/or liquidity of their stock and sales. Everything else is a distraction, including building an REO system from the ground up.

The answer? Outsource the real estate management system. Consider the expense of total cost of ownership and ongoing maintenance.

  1. How urgently do you need it to succeed? 

The final element to consider is how quickly the system needs to work and deliver value.

Buying a solution, payback is a lot quicker. It can be implemented quickly in an organisation with modest modifications. Investing in data is a proven route to success. Leveraging technology is a smart and low-risk way to deliver value within a relatively short time frame.

Companies that choose to build their own systems, often do so because they want to have total control; it will likely turn out to be far more lengthy and challenging than they had first anticipated.

So, to buy or to build?

Buy. All in all, using a platform solution can transform organisations by delivering a significant competitive advantage in several months, without having to count the cost in years.

Avoid building an enterprise-level system that just covers the basics that any system can do. In most scenarios, all the technology you need already exists and can be implemented quickly and cost-efficiently with modest customisations.