Spring cleaning for Real Estate business processes and IT systems

by PwC AM on March 31, 2015

By Tapan Nagori, Real Estate Systems and Information Technology Partner

Contributing author: Kevin Fossee, Director, Real Estate Advisory  

For many of us, it has been another cold winter and we’ve had our fill of shoveling driveways, sidewalks and, in some cases, even our roofs. But the end is in sight. It’s starting to hit 60 degrees in places that haven’t experienced warmth in months, and there are even sightings of grass in Boston!

This time of year brings me back to my childhood and our family ritual of spring cleaning. And now that we can come down from the roof and put the shovels away, it’s time to dust off the shelves, organize those closets and clean out that garage.RE technology

In the same regard, the real estate industry has had its own long winter during the down turn that resulted from the Great Recession. But, just as our friends in Boston are seeing grass, the real estate industry has been experiencing its own spring. We are continuing to see surging capital flows into real estate, rising asset values and increasing rents[1]. And at this time, some real estate companies are going as far as to do spring cleaning on their business processes and IT systems. During the last several years, many real estate companies chose to invest in real estate rather than invest in their platforms – the returns were too good to pass up. But competition has heated up, good deals are fewer and further between, and as many real estate professionals have shared with us, the returns are less driven by core fundamentals and more by market rates. According to the interviewees of PwC’s recent report, US Real Estate Insights: Winter 2015, increased consolidation is expected and the market is putting pressure on companies to get more efficient and operate at lower costs.

Perhaps a sign that change is on the horizon is that we’re seeing more projects now than two years ago. But what we’re experiencing is that many companies are still sitting on antiquated systems that are managing disparate processes. And, in many cases, this impacts the ability for operations to respond to the heightened business activity. For example, processes remain in silos across acquired portfolios, information is difficult to consolidate for reporting, and products that are approaching end of life are still being used.

A few months ago, my team sat with a client (this is a hypothetical client that is actually an amalgamation of many experiences) as they planned to integrate a significant portfolio into their platform. Our first red flag was the nearly 4,000 records in their charts of accounts. Then, we looked at the system they were using to manage their accounting functions. After we adjusted our glasses, we attempted to navigate the system to determine if the capabilities existed to consolidate the two portfolios into a single application and database. In the end, the client’s decision was to go in a different direction and implement a new system. The spring cleaning had begun! But, just like pulling those first few items out of the garage, it was only the tip of the ice berg.

The reality is that implementing new systems and processes doesn’t happen overnight. It takes planning and having the staff with the right skills and tools. From my perspective, it is time for real estate IT departments to start the conversation about their roadmap for the future. A recent informal survey conducted by PwC showed that 59% of our real estate clients did not have a CIO – which begs the question: who is leading the charge to provide strategic oversight regarding the necessary changes?

Additionally, many real estate companies are being challenged with having the right resources and capabilities in-house to implement the needed changes, and some are looking externally for assistance. In fact, many real estate companies run very lean in IT. Our survey also found that over 43% of our real estate clients have less than 10 people in their IT organization.

As the pressure mounts internally, at the same time, external factors are significantly increasing demand for IT organizations to enhance their capabilities. With the growth of institutional investments in real estate, increased regulatory pressures, and demands from investors for more sophisticated reporting and controls, companies are scrambling to respond. Investors are assessing platform capabilities in making investment decisions, and companies can create a competitive advantage by optimizing their processes, formalizing controls, and deploying sophisticated systems.

For those of us out there, it’s time for a spring cleaning. But where should you begin? Here are some suggestions for hardworking real estate professionals looking to get started:

  • Hold a workshop with business stakeholders
  • Take inventory of key processes and business applications
  • Establish a roadmap for process optimization and technology enablement
  • Develop a business case
  • Build out the finance and IT organization to support the initiatives
  • Evaluate new technologies such as Cloud platforms
  • Begin the dialogue of who “owns” and “manages” data

We’d like to hear from you. How has your company started to approach spring cleaning?

 

[1] Source: PwC, Emerging Trends in Real Estate 2015. US Real Estate Insights: Winter 2015.

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