The Tech Impact on Commercial Real Estate Transactions
STORY INLINE POST
This week was full of valuable feedback. A good friend of mine and qualified real estate investor gave me one of the simplest yet brightest pieces of advice in a single question. After I presented him with a demo of what Buzz Street is, he asked, “What is your irresistible offer?” That question shook me at once and made me confirm the solutions that I have already put on the table to make commercial real estate transactions more efficient and transparent to have a more liquid market.
According to Savills, the value of all the world’s commercial real estate assets reached $32.6 trillion in 2020[1]. For this reason, real estate transactions are relevant for any given economy around the globe. Simultaneously, transacting takes too much time, hence is costly, opaque, and inefficient.
In this article, we will find the various stages involved in a commercial real estate transaction and the causes that make this type of process inefficient and opaque.
As a technology startup centered on real estate, we have been focused on solving one recurrent problem in almost every commercial real estate purchase process, either institutional or not: Inefficiency. Speeding up a purchase process is important mostly because liquidity increases, and thus more investors and capital flow are attracted to the market.
We have identified four steps in almost every commercial real estate transaction – before completion – and the cause that affects the efficiency in each stage. At Buzz Street, we have developed a digital solution for each of these causes of delays..
Preparation
Most of the time, the preparation process consists only of thinking about who will be the broker in charge of this transaction instead of preparing a good data room for the legal, financial, and technical documents of the property. At least in Mexico, as the first step of a transactional process, property owners put together a teaser and share it on social media with no go-to-market strategy, believing that this could attract a substantial number of qualified buyers; however, these premeditated actions could cause a delay because the property is not ready to go to the market yet in terms of information.
Buzz Street, for instance, has a 10-step process to upload a property to our platform with basic location, financial and technical information that help the potential buyer make faster decisions on sending a letter of intent entirely through the platform.
Marketing Period
This stage aims to prepare a good presentation with basic data about the market, legal and financial fundamentals, as well as land use information. This presentation material could be made by either the owner or the selling broker.
Reporting marketing metrics correctly and digitally could bring efficiency to the transactional process, making it 1.5 times or even two times faster. Buzz Street has developed, for instance, dashboards through which the seller could see how many offers have been sent by potential buyers, as well as review metrics, such as the number of views, emails, brochure downloads, non-disclosure agreements, and letters of intent that have been sent by potential qualified buyers for a particular property or investment opportunity.
Value agreement
In this stage, the property owner and the potential buyer agree on the offer’s value. Typically, before the pandemic, these negotiations took place in person. After 2020, all these meetings can be remote. This considerably reduces the time spent setting up an in-person meeting between both parties.
Buzz Street has created a process through a layer of technology in which as a seller you can send a notification to any potential buyer to start a private remote conversation about the offer’s value.
Due Diligence
This stage is the most expensive and inefficient step in the process. In Mexico, due diligence can take from 60 to 120 days. The solicitor brings a legal advisory firm to review each of the documents in the data room. The expectation is that the data room has every document to complete the deal faster; however, according to agency brokers, the solicitor asks for additional information 90 percent of the time. In this case, the delay is a result of the lack of trusted, complete, and updated property information.
Buzz Street has developed a technological tool to make a more streamlined, transactional process. If the seller wants to sell faster and to have a better customer journey visualization of the deal, he needs to upload basic information in a digital data room in the very first stage to diminish the potential delay during the due diligence.
Conclusions
CRE transactions are still made in a very traditional way in which there is practically no technology layer involved in the process. Up until now, existing listing sites have been focused on the volume of visitors to their platforms and less on the quality of the potential buyers. Quality and accurate data attract quality investors. Better market information and more complete data rooms make potential buyers waste less time doing their research on the property. A correct reporting process makes the transaction more transparent and, finally, wider access to qualified investors makes the sales process faster.
[1] https://www.savills.com/impacts/market-trends/the-total-value-of-global-real-estate.html