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Artificial intelligence is infusing virtually every sector of the modern economy, and real estate is no exception. From machine learning algorithms that match homebuyers to listings to chatbots attending to clients’ needs, the real estate industry is buying into technological solutions that aim to make the industry more efficient, profitable and service-oriented.
In commercial real estate, however, AI has yet to gain a significant foothold. But the technology carries the potential to transform the core of the industry: the transaction process. AI’s integration into commercial real estate investment transactions promises to help tackle some of the industry’s biggest challenges, unlock once-invisible insights and deliver untapped value to investors. As a commercial real estate investor and a veteran of two previous tech startups, I see a world of game-changing opportunities in the fledgling field of AI-driven commercial real estate.
Yet, fully realizing AI’s benefits will require overcoming key hurdles, including knowledge gaps in understanding how to use AI in daily operations and challenges of integrating advanced tools into an industry where technology adoption is occurring at a slower pace. With real estate firms holding record high levels of dry powder — $278 billion as of June 2018 — now is an especially opportune moment to explore the role advanced technology can play in spurring new investments and generating profit.
Science And Real Estate: A Long-Awaited Union
As any real estate investor can attest, it often requires painstaking work to distinguish between genuinely promising investment opportunities and those that only look good on an Excel spreadsheet. Sifting the gems from the duds requires crunching as many data points as possible — and that’s where AI comes in.
Machine learning algorithms, trained on an abundance of market data, are able to generate hyper-accurate predictions, improving real-time investment decisions with analytical capabilities far beyond the limited scope of human analysis. These data points include rent, occupancy, cap rates, broker listing data, schools, crime, census figures, mobility scores and key economic indicators, alongside new types of data to which AI enables access, such as web clickstream data, cellular and geolocation data, satellite image data and more.
Take deal sourcing, for example, one aspect for which my own company and various others turn to AI. Already, the most advanced AI systems can efficiently pinpoint trends and direct investors toward the most promising zip codes and metropolitan statistical areas, providing a significantly broader market picture than human analysts could. Additionally, the rapid pace with which AI can analyze huge amounts of data means that AI-equipped investors can beat the competition to bid with quick underwriting that takes mere minutes, versus traditional methods which take days and even weeks. Moreover, through constantly analyzing key market indicators — including loan maturity, aggressive attempts to market vacancies, sudden increases in occupancy, rent anomalies and concessions and operational strategies on other assets — AI can passively detect and notify about soon-to-market opportunities so investors can score deals even before an asset reaches the market.
Once these and other emerging solutions are embraced by the industry, they will serve to augment the work of real estate professionals, with AI bringing unprecedented speed and insight to the process, transactions driven by a rich variety of data, a new breed of investment analysis and management.
The Outlook For AI Adoption
AI may be incredibly efficient, but that doesn’t mean that integrating it into commercial real estate is easy.
In conversations with veteran investors and real estate insiders, I’ve encountered a fair number of questions concerning AI’s value-add to the profession. But I’ve yet to encounter a single industry veteran who would reject having at his or her disposal a sophisticated tool for helping guide investment decisions and identify new opportunities — and that’s precisely what AI is capable of doing. Once real estate professionals start thinking of AI not as an encroachment on their territory but as a powerful decision making tool, able to analyze thousands of data points that it would take humans far longer to study, they become much more welcoming of its potential. More and more industry leaders are already embracing this shift with the integration of AI technology into core investment operations.
The proof of AI’s value proposition will be borne out in the higher profits and untapped value it helps materialize. Ultimately, each deal will — or will not — be inked according to the best judgments of the human beings party to the negotiation. AI is not about to change that. What it can do, however, is offer human investors valuable new tools for informing the decisions they make, leveraging once-unseen data correlations to find hidden value and gauge the risks and benefits of potential deals.
A growing body of evidence highlights how AI, combined with the faculties of human cognition, is considerably more effective and efficient at executing tasks than a human or a machine alone. Researchers from Harvard and MIT found in 2016 that while human pathologists slightly outperformed AI in predicting results from breast cancer biopsies, combining human and AI predictions sent the accuracy rate to 99.5%, with an 85% reduction in the human error rate.
As AI infiltrates more aspects of business, commercial real estate investors will come to expect that AI solutions are implemented to yield more precise decision making. Each deal will still involve its own element of art — but investors stand to win from bringing some data science to the process.