Recession exposses property software chaos
Copyright: David Lawson
Property Week April 2009
The recession has exposed how ignorance permeates the property industry. Bankers allocated billions on the basis of faulty information about bricks and mortar, property-based loans and bonds. Landlords and managers will be just as exposed as they come under pressure from shareholders, banks and regulators and don’t know enough about their own buildings and tenants.
Details of leases, tenants, void rates and running costs are vital for accurate valuations. Much of this information is floating around but is not always easy to access and integrate. Nor is it always up to date. Since the last slump, data has moved out of filing cabinets and card indices and onto computer screens but it is often scattered between different systems, isolated on individual computers or in programs that cannot communicate.
This depressing picture emerged as property professionals gathered at Realcomm Europe in London last month to discuss how software and technology will play a vital role in navigating the global recession. The industry must clean up its act to get through this crisis, said Stephen Spooner, a former veteran at British Land and now chairman of information interchange specialist PISCES. ‘Real estate is at the epicentre of the storm. We are not a victim like the car industry. Property is a reason for the crash,’ he said.
‘Yet when hard questions come, we will not be able to answer because we will be unable to show details of values. We will need more information to get an accurate picture: more information on tenants, lease structures and voids. ‘We can no longer delegate risk assessment to agencies. We can no longer rely on a bunch of scattered spreadsheets. We will be asked for clean and accurate property data by the banks when they come to analyse their loans.’
An industry-wide approach to software will be critical. It must find and centralise all the information and enable easy transfer to the systems used by lawyers, lenders and investors. Holding onto tenants will be a priority as they are tempted away by more empty space and lower rents. Yet many landlords don’t have the information to analyse who might want to leave, said Scott Knight, chief information officer at property manager Broadgate Estates. ‘Information is hidden away on excel sheets and needs to be brought together for analysis to help understand and service tenants,’ he said.
Assessing risk will become central to valuations. What are the chances that a tenant will go bust? What is the covenant strength of a potential newcomer? Management software still falls short in these areas, said Nigel Biggs, head of property and asset management [EMEA] at CB Richard Ellis. ‘There is no comprehensive knowledge of tenants. Information systems should show risk but I can’t see that happening because it would be very expensive. We rely on what public companies tell the Stock Exchange but a lot could be going on behind the scenes. ‘We could use research departments to predict risk but they would attach lots of caveats to their findings.’
Agents and managers are relying on traditional methods such as face-to-face meetings, asking existing tenants how they are performing and what can be done to make them happier. With so many tenants to cover, however, many will have already run to outsiders. Andrew Waller of business adviser Remit Consulting said: ‘By the time we become involved, it is often too late for landlords.’
Almost a quarter of property software users would fire their suppliers if they got the chance. This indication of underlying discontent emerged from a snap poll of the audience at one Realcomm session. Half said suppliers gave only average service, around a quarter felt they were not involved through partnering and a similar proportion thought things would get worse in recession.
‘The big vendors have gone too quiet,’ warned Nick Foster, chief information officer at Land Securities. ‘They should make more effort to talk to us.’ John Cuppello, chief executive of Cube, disagreed, saying that support would improve as suppliers would work harder to keep customers happy.
Managers must quote hard savings for ‘green’ technology, said Quinn Munton, managing director of management consultant Real Foundations. ‘You must be able to give a business case to justify using scarce capital, or you just won’t get the money.’
Powering phones and computers over networks offers such evidence, said David Palmer-Stevens, a manager at cabling specialist Panduit. Low wattage screens and PCs small enough to fit in a light switch can save 98% of power. He estimated £36,000 a year in power savings for every 1,000 desks wired this way. Xerox has gone further, installing systems where swipe cards turn on each desk and lights, then off when the user leaves.
Savings can also be shown where technology is integrated in ‘intelligent’ buildings. Panduit is using its planned 250,000 sq ft HQ in Chicago as a showcase for integrating systems such as building management, computer/phone networks and lighting.
‘Middleware’ Integration Software
Cost = $114,000
Annual running cost = $6,300
Annual savings = $0.15/sq ft
Payback = 2.6yrs
Extra cost = $218,400
Annual saving = $0.24/sq ft
Payback = 5yrs
Business Case for Capital Allocation
Investment = $615,148
10-year savings = $1,842,110
Average payback = 2.6yrs