|
The Role of
Information Technology (IT) in the Real Estate
Industry
Introduction
This article identifies the role of Information
Technology (IT) in the real estate industry. For
the purposes of this article, the real estate
industry includes real estate commercial and
residential property, developers, builders,
engineers, architects, suppliers, subcontractors
and other related entities. This paper will
identify the differences between the “Project”
and “Managed
Services Investment” approaches to
Information Technology (IT) and how
risk
assessments help real estate organizations get more out
of their existing IT investments.
The real estate industry brings together
people and information. For example, information
from a real estate developer’s job site may be
shared with field operations, production
scheduling, accounting, sales and many other
internal departments. Not only is the
information shared internally, but also with
outside business contacts such as architectural
and engineering firms.
In order to understand the role of IT in real
estate related companies, the nature of the real
estate industry in general should be considered.
From Boom to Bust, Real Estate’s Three
Phases
Real estate is generally characterized as
having a three-phased cycle including Inventory
Absorption, New Development and Contraction due
to excess supply. These phases are identified in
detail below.
Inventory Absorption
As the economy expands, the demand for real
estate gradually begins to grow. This initial
growth results in the gradual absorption of
residential and commercial properties. Office
vacancies start to decline as empty space is
absorbed, rents begin to stabilize and
eventually start to rise. At first, rents remain
below the levels needed to make new construction
possible. After a period of time, as demand
accelerates, markets tighten and rent rises
sharply causing property prices to start to
rise. IT projects that were put on hold during
the previous real estate down cycle remain on
hold until cash flow improves. Employees make
due with existing computer equipment until
financial situation improves.
New Development
Eventually, rents are increased to levels that
permit new development to be profitable. At this
stage, new development tends to occur at the
peak of the general business expansion cycle.
New building starts slowly at first and is
accelerated when financial surplus funds are
invested in new real estate development.
Typically, new building development exceeds the
growing demand for space, resulting in over
building. The excess inventory caused from over
building weakens the profitability not only of
newly created properties, but also of
long-established ones. As activity increases,
employees attend more meetings and an increase
in volume of work requires a greater need for
sharing of information between employees and
outside business contacts. IT projects are given
the “green light” and are typically behind
schedule and under funded due to the late start
in the real estate cycle.
Contraction
At some point during the over built cycle,
property markets begin to suffer from the
excessive space created in the preceding new
development phase. A general business slowdown
causes demand for space to slow, just as the new
space created in the preceding new development
phase comes into the market. This causes
vacancies to rise, rents to stabilize or fall,
property values to decline and new construction
almost ceases. IT projects started in the New
Development cycle are typically completed as
real estate enters its down cycle. New projects
are either put on hold or are cancelled and
there are no new investments in IT.
How is Information Technology Currently
Being Used?
Employees of real estate companies frequently
think in terms of “projects”. It comes as no
surprise that a majority of companies think in
terms of “projects” (E-mail implementation, web
site development, high speed Internet access,
etc.) for their IT systems. As a result of this
“project” style of thinking, IT and its related
funding typically follow the real estate boom
and bust cycle. Many “projects” are limited to
automating the data capture and reporting
processes within a company. For example, IT
might be used to automate the process of
producing construction budgets, writing
commitments and tracking payments to vendors. IT
funding typically only occurs during one or, at
most two, of the real estate cycles. With
limited and inconsistent funding, few companies
are able to achieve high level goals with their
IT systems.
Successful real estate companies use an
“investment” vs. a “project” related approach to
their IT systems. The “investment” approach
provides IT funding during all three phases of
the real estate boom and bust cycle. Even in a
down cycle, successful companies use IT to
reduce costs and improve operational
efficiencies. Through higher end connectivity
solutions, an employee in the field might be
able to electronically transmit up-to-date
information to an IT system in the corporate
office. The information is updated real time and
provides management with information not readily
available anywhere else. This long-term approach
to IT “investment” supports the company’s
long-term goals and objectives. Companies using
the “investment” approach are able to move
beyond IT basics and achieve a competitive
advantage in their marketplaces.
What Are the Issues?
Many real estate companies will need to rely
on IT to allow them to expand their businesses
over the next five years during a time when many
are predicting a slowdown in the economy.
Expected slowdown
“We are seeing a definite slowdown in actual
and projected Orange County growth” according to
the 1999 Urban Land Institute Orange County
District Council which also reported
“Nevertheless, companies are still generally
optimistic about growth opportunities and
continue to view Orange County as a good place
to do business.”
Business expansion
In a similar poll, 63% of the respondents to
the 1999 Orange County Executive Survey said
that they expect to expand their business within
five years despite a corporate hiring decrease
from prior years. Only 34 percent of the firms
stated they would add more employees over the
next year.
Will Information Technology Change the
Real Estate Industry?
IT is becoming a driving force necessitating
change in the way real estate companies market
to their clients. According to a 2005 California
Housing Finance Survey, published by the
California Association of Realtors, one-third of
the Californians who bought houses the first
quarter of 2005, and one-fourth of those who
sold houses, used the Internet in some way.
Companies that are quick to adapt will
survive and those that delay will find it harder
than ever to survive against IT savvy
competitors. A 2005 Orange County Executive
Survey confirmed the growth of the Internet and
showed that 90 percent of surveyed businesses
now have a web site compared to 79 percent in
1998 and 59 percent in 1997.
Employees of real estate companies are
wearing more hats than ever. Corporate real
estate executives serve as directors and
integrators of information. The traditional
lines between departments such as sales, human
resources, information technology, finance and
others have blurred as departments have a need
to share the same information. “Investing” in
the IT integration of corporate wide information
is essential in order to build a foundation to
allow a company to achieve higher level,
long-term goals. Effective use of IT is quickly
becoming a necessity, even in an industry as
conservative as real estate.
Corporate real estate executives must play a
leadership role in the integration of resources
and IT; thus easing the transition as the lines
blur. This requires a blending of people,
technology, and connectivity. In this new era,
the role of the corporate real estate executive
is one of a strategist. New trends and alliances
are bringing about continual change in the
business climate. One of those changes is the
rise in outsourcing.
Internal IT employees frequently have the in
depth knowledge required to run and maintain
in-house systems. Outside IT professionals
provide industry expertise and experience needed
to leverage corporate real estate in a new
light.
Is Real Estate Evolving?
IT is a key reason for the quickening pace of
the corporate real estate evolution. IT is
critical in the linkage between the parts of a
company that previously had not been linked.
This has become even more important in the
context of corporate alliances and support of
long-term company goals.
Corporate real estate executives are
evaluating new information technologies and the
impact upon their organizations. A key question
is what role IT plays in helping a company
become more effective, improve service and
measure performance while adding value to their
business. Implementing more efficient work
processes throughout the organization allows a
company to grow revenue. If a company isn’t
growing revenue, it must reduce expenses.
Consolidations will continue to occur in the
real estate industry. IT provides the
opportunity for savings through the integrating
transactional and reference information.
What Opportunities Exist?
The following are examples for real estate
companies that present
opportunities for companies to gain additional
efficiencies through implementing technology
solutions:
- Sharing of common information between
various departments. A company using a
“Project” related approach to IT might
install new equipment in various departments
but fail to assist in the sharing of common
information. Each department (Accounting,
Operations, etc.) might create their own
client database with the same vendor address
and information. A technology “Managed
Services Investment”
approach would centralize information into a
shared database used by all departments. In
addition to the elimination of duplicate
information, operational efficiencies are
obtained when a vendor address change only
needs to be updated in one location.
- Integrating IT with business
processes. On a “Project” related approach
to IT, companies install new equipment but
fail to integrate the new software and
hardware with business processes. An
“Managed Services Investment” approach would include a
business process mapping or analysis. An
analysis might follow the trail of
information from a field supervisor
approving the work that was done, the
vendor’s invoice, receiving documents and
the accounts payable process to cut the
vendor check. A process mapping or analysis
allows the company to determine how
information is used throughout the company
and if there should be a change in the way a
business processes information. IT solutions
are then implemented to support the new
business processes. Using this “Managed
Services Investment”
approach, IT solutions are able to achieve
optimal results.
- Connecting remote locations to
the main office. Information exists at a
number of different locations. A “Project”
related approach to IT involves the
installation of dial-up telephone lines or
use of the Internet. This allows remote
employees working in remote locations to
connect to the main office. The
concentration is on data collection and how
to connect the remote employee to the main
office. An “Managed Services Investment” approach might
implement solutions that examine how
information is used at a remote site. For
example, information could be gathered using
a hand held computing device then
transmitted electronically to the corporate
office. This methodology places technology
in the hands of the employee performing the
work. The “Managed Services Investment” approach focuses on
how the remote employee uses information.
- Compatibility with major business
contacts. A “Project” approach to IT might
include the installation of new hardware and
software that is similar to what a company’s
major business contacts are currently using.
An “Managed Services Investment” approach would include
working jointly with outside business
contacts to determine their future plans and
direction. A combined integrated solution
with a company and its outside business
contacts provides a sound foundation for the
future.
- Tracking and accounting for large
volumes of transactions. “Project” related
solutions involve the installation of new
hardware and software solutions capable of
handling larger volumes of data. An
“Managed Services Investment” approach would involve the
implementation of a document management
solution capable of storing electronic
images of various documents. This higher end
solution would allow an image of a
committing document (purchase order, work
authorization, etc.) to appear on the screen
for an accounts payable clerk. When
processing a payment, it would be a simple
process for the clerk to verify the invoice
matches the committing document. With this
approach, the filing process is also
automated, enhancing the future retrieval of
information.
- Efficient use of IT systems currently in
place. Organizations taking a “Project”
approach might install new IT systems, then
request that employees attend outside
training classes. Under this “Project”
approach, employees learn on the job or from
each other using a trial and error
methodology. An “Managed Services Investment” approach to IT
involves IT and company employees working
together during the design, testing and
implementation process. Once systems are
installed, the “Managed Services Investment” approach works
with employee departments to receive the
training and follow-up support that is
needed. IT follow-up support starts
immediately upon implementation and
continues while the IT systems are in place.
Larger companies may implement a help desk
that acts as the initial front line of
support to the company employees.
- Use of IT for marketing. A “Project”
approach to IT might involve the development
of a company web site. While this provides a
high tech image for the company, it does
not, by itself, help the company achieve its
long range goals. An “Managed Services
Investment” approach
integrates the company’s web site with
local resources. In addition, web site visitors
might request company literature requiring
future follow-up. This information needs to
be integrated with the manual processes that
already exist within the sales and marketing
department.
As IT grows, management should strategically
think and not limit their approaches to the
examples outlined above. Solving the issues
facing today’s businesses provides a dramatic
opportunity to improve operational efficiencies,
reduce costs and improve competitiveness.
Summary
Employees of real estate companies frequently think in terms
of “Projects” for their IT systems. This style
of thinking, and its related funding, typically
follow the real estate boom and bust cycle. With a
limited and inconsistent funding, few companies
are able to achieve long-term corporate goals
through the implementation of IT solutions.
Successful real estate organizations use a “Managed
Services Investment” vs. a
“Project” related approach to their IT systems.
The “Managed Services Investment” approach provides IT funding
during all three phases of the real estate boom and bust
cycle. To achieve optimal results,
risk
assessments are employed
during the entire life of the IT systems. By
integrating IT with business processes, a
company is able to achieve long-term corporate
goals and objectives. This prepares a company to
compete against highly professional and
financially sound competitors.
Future opportunities require an aggressive
IT strategy that necessitates funding through
all three phases of the real estate boom and bust cycle. IT
is not a “Project” related expense. With the
proper funding, IT is an “Managed Services
Investment” in the
company’s future.
Each organization has a unique
environment that makes it difficult to protect
against new and emerging threats.
Network and
security assessments help organizations identify,
manage, and reduce their risks.
Publication and Author Information
Jim
Kelton is president of Altius IT, an IT risk
management consulting company based in Santa
Ana,
California. Mr. Kelton has over 30 years of
experience in the Information Technology
industry and is recognized as a security expert.
He is certified by the Information Systems Audit
and Control Association (ISACA) as a Certified
Information Systems Auditor (CISA). Jim Kelton
Altius Information Technologies, Inc.
1506 Brookhollow Drive, Suite 122
Santa Ana, CA 92705
(714) 442-6670
|
