Commercial real estate today bears little resemblance to the industry of 20 or 30 years ago. Once, the CRE industry depended on capital from a hodge-podge mix of investors that were either overly involved in the asset or that owned it for everything but the fact that it was real estate. Since then, the industry has diversified, professionalized and become much more data-driven. While many of these changes have happened on the ownership side, they still have ramifications for tenants as well.
Way Back When...
In the 1980s and 1990s, commercial real estate went through tough times. Before the tax reforms of the Reagan-era, commercial buildings were frequently held by non-traditional investors for tax reasons. The combination of the Reagan reforms that eliminated many of the real estate tax shelters and the financial upheaval of the S&L crisis changed the ownership pool for commercial real estate. As the sector recovered from that double whammy, a new class of owner emerged -- financial professionals.
When major institutions and Wall Street banks got involved in commercial real estate, the nature of ownership changed. A higher degree of professionalism became a part of the industry and, with their professionalism came new approaches to being a new landlord.
The Financialization of Commercial Real Estate
As commercial properties became core assets, both the nature of equity and debt changed. On the equity side, some of the best respected institutional investors in the world became major real estate owners. Debt started coming from the capital markets, as well. With Wall Street debt available, real estate moved away from being community funded to being globally funded.
Larger and more professional owners with larger and more professional lenders take a different approach to building ownership and management. Frequently, they work with professional management and leasing firms. These firms interface with tenants and vendors for them. Frequently, these arrangement bring the opportunity for better and more consistent service. However, they can also remove some of the flexibility from the tenant-landlord relationship.
Data Driven Real Estate
Another change that has come both from broader trends in society as well as from the professionalization of the industry is the increased use of data to ground decision making. Once, commercial real estate was largely done by the seat of the pants. Developers used their best guesses to choose what to build and where, owners set rents based on what they thought they could get and managers and corporate real estate teams operated buildings to parameters that they hoped were efficient.
Today, everything is changed. Better geographic, demographic and psychographic data lets developers identify exactly which type of building, what quality and what size an area needs long before starting construction. While competitive rent and occupancy cost data is not always readily available, it can be found with work, expense or a combination of both. These data pools let landlords maximize their income while also letting tenants that tap into them ensure that they are getting a fair price -- before they sign their lease.
The revolution in data-based building occupancy management allows companies to benchmark their portfolios against each other for better cost efficiency. It also allows commercial real estate buildings to run better, reducing their environmental footprint and protecting the ecosystem.
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