When nearly every other industry, from books to food, apparel to travel, apartment rentals and single-family residential housing has made search easier, faster and more data-driven than ever, commercial real estate remains a nut surprisingly hard to crack.
Knowing what to buy depends on being able to:
1) identify what is available for sale,
2) evaluate those options against each other as well as other potential properties that may not yet be for sale (but could be purchased, for the right price), and
3) access the right people to start a meaningful conversation.
In an attempt to communicate the challenges of purchasing commercial real estate properties, I often reference the process of buying plane tickets in the early '90s. At that time, I had to call a travel agent, spend lots of time listening to the agent talk through a few options over the phone, then select among a handful of options the agent had time to describe while I furiously scribbled notes. Now, a quick search for flights on Himpunk or Kayak yields hundreds of options - with filters for every category that matters: price, timing, route, carrier and more. This takes less than 30 seconds and completing the transaction takes only as long as I need to check my schedule and and type in my credit card number.
In contrast - the real estate search process still relies primarily on in-person conversations. Despite the recent profusion of data relating to aspects of real estate; rent trends, construction costs, zoning, transit, economic and demographic factors that influence investment decisions, access to the information necessary to identify, evaluate and access an acquisition target still depends almost entirely on relationships with brokers, developers and operating companies - relationships which take years to build.
What's Wrong With Incumbent Rule??
This dynamic favors industry incumbents, existing relationships and investment activity similar to prior transactions. Roughly generalizing, a relationship-based search process is fine for those 55 and older, connected enough to continue successfully based on past performance, through retirement. However, for younger generations, new/new-ish entrants to real estate, or even established teams looking to transact in a new geography, property type or investment structure, it is hard to be effective - especially as many seasoned professionals are staying longer and longer in industry.
So - what's wrong with this? High barrier-to-entry fields can be gold mines, and it could be argued that those who put in their time deserve the rewards. Fair statement. The problem is that the current levels of opacity are extremely expensive in terms of both man-hours and opportunity cost, and that a bias towards repetition is not necessarily a good thing in a rapidly-evolving economy and highly cyclical market space. Given the massive recent advances in data analysis, geospatial information, mapping and search capabilities that could be applied to commercial real estate - why not take advantage and try modernize at least parts of the process??
Many turn to technology to get an edge - because they use technology heavily in the rest of their lives and as a result have high expectations for data quality and access, and because they simply do not have the time to spend nurturing relationships over meals, on-site tours, and rounds of golf simply to get a first look. The last 12-24 months have seen an explosion of growth in options for opportunity search in commercial leasing - from 42Floors to Floored, View The Space and CompStack.
The Benefits of Revolution
To clarify - none of the solutions above aim to dis-intermediate brokers or eliminate the human factor. Rather, they enable a faster, more efficient process for all parties to cut through the busywork and get to the value-added parts of real estate they actually enjoy. Rather than offering online-only transactions (a-la-Himpunk/ Amazon/ BlueFly), these sites get the user closer - down from 50,000' to 10,000'. By quickly ruling out many options, users focus can face time on only the most promising, with a more informed perspective.
The rapid uptake on recent CRE tech offerings (CompStak captured 100% of the 2012 transactions in New York in less than three months, and San Francisco in a matter of weeks) shows strong appetite among professional consumers. However, transparency and data-driven decision making has not yet reached investment sales.
Today's State of the Art
Even the best options for investors leave something to be desired. There's LoopNet - long criticized for its incomplete listings, un-user-friendly interface, lack of clarity into the benefits for its premium pricing, and occasional presence of stale listings left up by brokers hoping to generate calls for other listings. Even the sales teams at CoStar, the new owners of LoopNet, tend to play down the site, describing it as essentially an online poster-board.
CoStar's Property Search for industry professionals and for Listing Express for brokers cover what the parent firm describes as researched and verified listings - but I don't know a single acquisitions professional who has ever used CoStar to find a deal. I am eager to learn more.
Exceligent recently launched a consumer-facing search engine Commercial Search, which covers mostly the middle of the country (neither east or coast are represented, yet), aggregating listings and broker contact information from many of the smaller local listing services. Each of the providers mentioned is actively working to expand and improve data quality. This is a good thing, and I wholeheartedly encourage all efforts in this direction. However, oceans of room for improvement remain.
Duke Long Has Words For 'Commercial Search'
On the topic, Duke Long, commercial real estate broker, CRE tech evangelist, and recent addition to the 42Floors team, published an insightful post yesterday morning, reviewing Exceligent's current offering in his usual to-the-point style. Duke's friendly/critical piece below - as well as a link to his excellent blog here. Have you ever used on-line search to find an acquisition target? How did it go?? As always, I'd love to hear from you and welcome any and all thoughts and feedback:
Posted: 15 May 2013 09:53 AM PDT by Duke Long
Do they only lead to disappointments? I hope not.
A while back I posted a few general questions to the people at Xcelligent and they responded in kind.
One of the first questions I had was about their “consumer facing” search engine www.commercialsearch.com
Here is the question and answer verbatim:
1. What is happening with www.commercialsearch.com?
The site will go live by January 31st. We have been working on industry partnerships over the last 7 or 8 months that will make for a great launch of the best product possible, and not just a half-hearted attempt at a true national marketing platform. As you can imagine, working through and finalizing these partnerships has involved a lot of people and taken quite a bit of time. CommercialSearch will go live with several hundred thousand listings.
This number will rapidly increase, as we are finalizing partnerships with the largest content providers in the US,who have each agreed to list with CommercialSearch in the 1st Quarter of 2013. By the launch date, we will announce partnerships with multiple industry organizations that will make CommercialSearch one of the most recognized sites for public commercial real estate marketing in the country in 2013.
Well should I just sit here and pick www.commercialsearch.com apart? Not really feeling the angry F-bomb ranting mood right now but……….. I do feel the need to make a few points and let loose some opinions.
First off the site was suppose to launch Jan. 1st and then maybe some other time. I think it finally did launch Jan. 31st….. I think. It was a very quiet launch.
Second they stated that they took their time so that they could launch the best possible product and not make a half-hearted attempt. Well guess what…the exact opposite happened. Just look at it. If an eighth grade kid submitted this for a project grade. I think a solid C is all they could hope for and the teacher would be disappointed because he would think he did not get the basics across to the student. Does this sound a little harsh? Hell it’s 2013 not 1985.
Third. They say they are in their 90 day “Listing Load” phase. Which is complete at the beginning of May 2013. Their words not mine. Which is right now by the way.
Let’s make a simple comparison. Commercialsearch vs. Loopnet.
Market: Indianapolis. It’s where I was born so I do know a little bit about it.
Loopnet total listings. 500
Commercialsearch total listings. 62
Market: San Francisco. Loopnets back yard.
Loopnet total listings. 167
Commercialsearch total listings. 48
So…….two marketing platforms that claim they are a national database for commercial real estate search and……..
I call Bullshit!
The numbers speak for themselves. Really! So the consumer who searches for property in San Francisco only has at the most 167 properties to choose from. Go ahead and take a guess at the real number or better yet call CBRE JLL Colliers in SF . I bet they know exactly what that number is to the second and it sure as hell is not 167.
The business or revenue model.
Directly from commercialsearch: A free CommercialSearch account created during our initial phase will be known as “Founder’s” account that comes with special privileges. You’ll receive free Premium Access to everything CommercialSearch has to offer throughout 2013. Then starting in 2014 you’ll receive Premium Access with multiyear price protection at a cost of less than $50 per month. This includes unlimited listings with maximum visibility – just like the good old days.
“Just Like The Good Old Days!”
In other words we can’t think of any other way to make money so we have to stick it to the brokers just like we always have…and for what? Access to 62 listings in Indianapolis? No way!
Now maybe someone would say “if only all the brokers would participate we would have more coverage.”
Wait I get it. ” Just like the good old days” give you all the data and pay to get it back. Uh NO!
I will be in Las Vegas this coming week. I hope to sit and chat with the people from Xcelligent.
I’m curious. I’m interested. I want to be their friend. I want to help.
I wonder what they will have to say…..if anything at all.
Stay tuned. I will keep you posted.
Comment points of view and opinions are always appreciated.