Copyright David Lawson - Property Week 2004
‘IT is considered super clever but is utterly stupid. It is only as good as the information you put in.’ – Paul Halford, Kel Computing
Property software faces its biggest crisis since technology began to play a key role almost 20 years ago. Moves towards real estate investment trusts, short leases and demand for whole-life costing of buildings could be crippled by deep flaws which have been allowed to persist over the years.
Firstly, systems will be engulfed with information it simply cannot handle. ‘Some analysts predict REITs could increase transactions tenfold,’ says Chris Lees, chief executive of Calvis. ‘Many of the well known names could just fall over.’
The problem stems from the ‘silo syndrome’: valuers, managers, finance and facilities professionals all using different – often incompatible – software. ‘Imagine just twice the number of deals. That would mean twice the amount of information having to be transferred between each department. Usually this is done manually, and there just aren’t that many people to do it,’ says Lees.
Another flaw lies in the actual data. Investors in retail trusts will want constant updating on asset values, much as equities and bonds are displayed in a constant stream on City traders’ screens. Analysts will demand detailed information on how such valuations are done so they can feed advice through on pricing. Conventional techniques based on period calculations by valuers will not work.
Meanwhile, investors and occupiers are beginning to expect information on how much buildings cost to run - another blind spot even for property managers, as this has been left to specialised facilities management programs.
The picture is not entirely bleak, however. Huge efforts are being made to tunnel between the silos and avoid potential bottlenecks. Pisces - in simplistic terms a common ‘language’ for data - will enable information to be shipped between different types of program.
The whole process of swapping information will become quicker. It will also enable specialists and investors to import information to spreadsheets or particular analysis programs in the form they require. That will still leave underlying problems such as performing continuous valuations, however.
Visions of hoards of valuers swarming across sites every day are unrealistic, says Paul Halford, managing director of Kel Computing. ‘Forget the numbers. Just think of the expense.’
Inputting current information would also be enormously expensive, so software will have to be recast to produce figures based on samples and mathematical models. But investors will want more than current information. REITs are based on the attractions of income streams, so future cashflow will be critical.
Existing property management software could be tweaked but that is likely to be based on projecting past trends – a technique largely discredited in equity investments following the stock market crash.
Kel has produced what it calls a ‘supertool’ overlaying its Sigma valuation suite to do the job based on definite factors such number/type of tenants and lease lengths. Portfolio Plus provides cashflows for the life of the building after adding estimated factors such as rent growth, void periods and so on.
‘It also takes data from the existing valuation program so that does not have to be re-keyed,’ says Halford.
Circle says it made plans long ago for changes in the kind of information investors will demand by flexible construction of its valuation systems . While most customers are major landlords, programs like Visual Investor can be scaled down to analyse assets of any size. Experience in the US, where REITs have long been a major influence, shows this can cope with potential demands over here.
Meanwhile Lees is working on coping with the potential explosion in the number of transactions. Lawyers, like valuers, are in limited supply, so it seems inconceivable they will be able to handle the boom in documents that will need checking.
Pisces is one answer, enabling information to be transferred between different documents such as leases and management reports. Another could be automated analysis of leases.
Calvis is working with AdSensa on a system called WordSensa which would scan the dozens of leases in a typical portfolio, grouping similar clauses. A second scan would then pick out the differences within these groups. Lawyers could limit checking to the variations rather than having to read through every piece of paper.
Another big name is attacking the mountain of information that emerges once transactions are complete. Facilities management has long been ignored by property and asset managers as something for tenants and the boiler-suit end of the industry. Yet cost in occupation has soared up the agenda as both occupiers and investors look more closely at efficiency.
One of the sector’s leading software suites, Manhattan, is being extended with a bolt-on FM module to tackle this area. ‘By bringing together advanced property management and facilities management functionality in one fully integrated system for the first time, Manhattan generates a greatly increased return on investment that has not been seen before in pure property management software,’ says Steve Vatidis, group managing director of Raindrop Information Systems.
The latest version of Manhattan bring launched at PCS Expo also includes a range of new graphical tools for space management and maintenance scheduling. Development has taken three years and reflects demands for software that can help reduce life-cycle costs, improve productivity and increase long-term yields.
The suite is designed to deliver strategic business benefits by enabling a company to manage its property life-cycle as a single process across the whole organisation.
‘Rather than simply increasing efficiency within individual departments, Manhattan enables users to enhance the property portfolio’s return to the business as a whole - releasing vital funds that the board can invest in more strategic areas of their business,’ says Vatidis.
This cross-department view is vital to the future of property software, adds Lees. Until users abandon their silo mentality, they will trail behind the US and other UK sectors. Even within large firms, colleagues outside corporate real etate departments are comfortable with integrating areas as diverse as accounting and human resources through business enterprise programs like PeopleSoft and SAP.