COVID-19 is forcing the industry to embrace teleworking and a wide array of digital tools.
The COVID-19 pandemic has introduced a great deal of uncertainty into the commercial real estate industry. It has also forced CRE companies to come up with solutions to keep operations running when it’s not feasible for everyone to be in the office. That includes adopting new technologies and embracing remote work.
“I think there will be lots of new investments in collaborative technology to enhance the growth in working remotely,” said Gregory May, executive vice president and West Region market leader for Newmark Knight Frank, during a NAIOP webinar this spring. “As brokers, we’re used to working remotely. About 90% of our day is out of the office or in our cars. I think it’s something that’s here to stay.”
While the pandemic has been the catalyst for a surge in new technologies, the commercial real estate industry has been moving toward this moment for several years. Brokers in particular have been working to adopt digital solutions that can boost back-office efficiency and streamline operations.
Remote Work in CRE
The social-distancing aspect of the coronavirus pandemic rapidly introduced remote work to millions across the U.S. According to Stanford University economist Nicholas Bloom, it was a crucial tool for both fighting the disease and reducing its economic impacts.
“Without this historic shift to working from home, the lockdown could never have lasted,” he said in an interview with Stanford News Service in June. “The economy would have collapsed, forcing us to return to work, reigniting infection rates.”
Telework has also proven to be popular. A survey of U.S. consumers conducted in April by the IBM Institute for Business Value revealed that more than 75% of respondents said they want to work from home at least occasionally, and 54% want it to be their main way of working.
The commercial real estate industry has fully embraced telecommuting. For example, NAIOP’s monthly Coronavirus Impact Survey, which began in April, shows that an average of about 55% of commercial real estate firms were asking employees to work remotely from April through June.
During a series of NAIOP webinars in March, when COVID-19 was rapidly becoming a crisis in the U.S., commercial real estate professionals discussed some of the challenges of the transition to telework.
“At the time we started this, we didn’t know where it was going to go,” said Barry Blanton, a founding principal of Blanton Turner, a real estate management and consulting firm based in Seattle, an early COVID-19 hot spot. “We just knew that whatever we were going to do, it needed to ramp up as the pandemic grew and ramp back down as the pandemic was brought under control and the recovery kicks in.”
Appraisers were prepared to deal with the shelter-in-place rules, according to Jim Amorin, CEO of the Appraisal Institute.
“Maybe everyone was not quite as efficient as they would have been otherwise, but if we have a strong internet connection and the ability to pick up a phone and talk to market participants, we can do a lot,” he said during a NAIOP webinar. “We can view digital files to show how a property exists on a particular date. All of this is done while working in conjunction with property managers.”
There were more than 18 million coronavirus-themed malware and phishing emails sent each day in April, according to Google’s Threat Analysis Group. Getty Images
Almost overnight, virtual inspections of properties became a necessity.
“There’s nothing in the uniform standards that appraisers must follow that says you must do a physical property inspection,” Amorin said. “But one of the requirements is ‘can you gather enough information to a credible opinion of value,’ and technology has really helped appraisers be able to deal with those issues.”
According to Nick Romito, co-founder and CEO of commercial leasing platform VTS, showing properties virtually has grown tremendously during the pandemic.
“Eighty-two percent of tenants are not comfortable touring space in person,” he told Propmodo in September. “If you are not able to provide a digital way for people to understand space, you can’t even play the game, let alone win.”
Romito said brokers are using digital analytics to help in negotiations.
“We had a broker tell us that while in a negotiation they saw the virtual tour views go from a few dozen to a few hundred,” he told Propmodo. “That told them that the property was being looked at by the entire management team, and so they knew they would likely not need to make a concession since the company was already preparing for move-in.”
May said his first week of working remotely in March was “actually kind of fun.”
“I felt like I could wake up and I was in the office,” he said.
That changed about a week later, however.
“I started realizing that I really missed the people,” May said. “I missed the collaboration, and I missed the opportunity to spend time in the office. I think we learn a lot in those environments. As much as we have found this to be fairly productive, there’s a big element that’s missing. It’s that interaction with people in the work environment.”
But the absence of collaboration isn’t the only problem related to working from home. According to social media startup Buffer’s 2019 State of Remote Work report, 49% of remote workers said their greatest challenges were related to mental health. Specifically, 22% said they were unable to unplug from work, 19% suffer from loneliness and 8% struggle with motivation. Proactive communication can help eliminate feelings of disconnection and isolation among staffers.
An inefficient home-office setup can be a major problem as well. According to Bloom, more than half of Americans who are now working from home are operating out of a bedroom or another shared room.
Security is a major concern with teleworking, too. Home-based internet connections can be much less secure than those in an office setting that can be closely monitored by IT staff. Possibly because of that, hackers have increased their efforts during the COVID-19 crisis. For example, Google’s Threat Analysis Group detected more than 18 million coronavirus-themed malware and phishing emails each day in April.
Connection and Communication
Many individuals working remotely have experienced connectivity issues when trying to access necessary files and manage workflows. In fact, Bloom said only about 65% of Americans have a home internet connection that’s fast enough to support video calls. One of the first steps an organization might need to consider is providing key executives and administrative support team members with home internet benefits. It will ensure that they can operate efficiently without significant bottlenecks.
Blanton said his company prepared for emergencies by setting up its entire operation to be cloud-based.
“In our system, we can do management, accounting, human resources, marketing and virtual leasing all on the cloud,” he said.
Another crucial early step in setting up an effective remote workforce is selecting the right communications and remote tools. Some of the more frequently used internal and external communication tools are Slack, Microsoft Teams and UNITE. Popular remote-connect tools are LogMeIn and Splashtop. Each has various levels of service with additional upgrades and can support even the largest businesses.
Everyone wants normalcy and connection in times of uncertainty. During the pandemic, video communication has proven that it can go a long way toward providing those intangibles.
“When utilized correctly, videoconferencing means we don’t have to give anything up,” Adam Gower, an authority in content marketing for the real estate industry, wrote in an article for National Real Estate Investor in March. “It allows us to be anywhere and everywhere in a way that even the novel telephone never possibly could.”
Some of the best-in-class video-conferencing platforms are Zoom, Webex provided by Cisco, GoToMeeting, Skype and Google Hangouts.
While Zoom emerged as the most popular platform during the pandemic (its stock value has increased 400% since the start of the year), it’s been plagued by high-profile security issues. One of the biggest was the “Zoom-bombing” phenomenon, in which hackers were able to access private video conferences and disrupt them. Webex, which is used by the federal government, is considered to be more secure by many cybersecurity experts.
The Future of High-Tech Brokerage Operations
The coronavirus crisis did more than bring telecommuting to the forefront of the commercial real estate industry, however. It has also highlighted a long-term need for greater automation in back-office brokerage operations. That, in turn, will require a different mix of skills than were needed in the past.
Electronic payments are potentially a major growth area for the commercial real estate industry. Getty Images
A recent report in Inc. Magazine found that the most desired skills for future back-office professionals include strategic thinking, adaptability to new and evolving technologies, and good collaboration skills. Financial knowledge is still essential, but it’s no longer a prerequisite.
While COVID-19 has accelerated changes, revolutionary technological advances have been on the horizon for a while. Development magazine’s Winter 2018-2019 cover story, “How Technology Will Change the Brokerage Business,” touched on the disruptions that are on the way or already here. Joan Woodard, the former president and CEO of Simons & Woodard in Santa Rosa, California, wrote that “brokerage firms are investing in and building out their own technological solutions for more extensive data collection and compilation, marketing, space visualization, client contact-management and other competencies.”
Better technology promises to help back-office staff become more productive. Firms can concentrate on assisting ownership with cash-flow management and forecasting.
Unfortunately, not everyone in the industry is adapting at the same rate. In an article for Forbes in October 2018, Robert Finlay, CEO of Lyra Intel, noted that most real estate business organizations
had not yet invested significant time and resources to streamline their back-office operations.
So what are some best practices to put into place to help run brokerages digitally and effectively during the next disruptive event?
Those who worked through the commercial real estate downturns in 1989, 2001 and 2009 learned firsthand that vendors and lenders favor those who pay their bills in a timely fashion. Moving to automated cloud-based applications can effectively manage these functions. It can also allow a brokerage business to run more profitably and productively.
In a recent study by Wells Fargo, organizations identified manual processes as the No. 1 operational challenge for their back-office staff. The three most time-consuming and frustrating activities reported by back-office personnel were managing payments to vendors and employees, forecasting cash flow and accurate budgeting.
Today’s cloud-based systems not only automate a company’s back-office processes, they also provide a central, easily accessible hub for all payments and related files. Additionally, having a system that doesn’t require personnel to physically go into the office can relieve ownership of potential liability that might arise during a government-mandated shelter-in-place order.
Most banks and accounting systems provide multiple electronic options for customers to make payments to vendors, employees and commission-based agents. However, bill-pay features via a bank still must go through a clearing house, which issues a paper check that is ultimately mailed to the recipient. This option can easily take 10 days to reach its destination and then must still be deposited.
For additional fees, banks can allow customers to internally create automated clearing house (ACH) and wire transfers. This allows direct deposits into the recipient’s bank account within one to three days. Typically, these upgraded options have built-in approval processes to protect customers. Accounting software packages also have features that allow direct-deposit transfers for payments.
As a real estate company transitions to a digital back office, it’s important to make sure that software vendors provide an engaging and responsive customer success team. There is a standard metric within the software-as-a-service (SaaS) industry that measures how well organizations provide outstanding customer service. The metric is known as the Net Promoter Score (NPS). Requesting the metric from a potential provider can illuminate the quality of the company’s customer support. Scores range from a low of -100 to a high of 100.
Moving to a digital cloud-based system requires increased caution with email communications. The risk of fraud can potentially increase with cloud-based platforms.
However, utilizing an internal instant-messaging application such as Slack or Trello can significantly reduce the opportunity for scammers to capture a company’s sensitive information through email phishing attacks.
Despite that, there is still a danger that the accounts of individual users on those chat apps can be compromised, so approach them with caution.
Receivables and Invoicing
At many companies, the only method for processing invoices is through a desktop computer setup at the office that requires someone to physically be there. Several CRE-centric invoice solutions have entered the marketplace in recent years. Based on the brokerage’s desired level of accounting detail and reporting capabilities, managing principals, CFOs and controllers have several options to consider.
To fully move into a digital back-office process, companies must also utilize an option to electronically accept vendor payments for commissions and related fees. A few of the more popular are PayPal, Stripe and Chargebee. For national and global brokerage operations, Braintree, owned by PayPal, offers more robust options.
Expenses, Payments and Platform Integration
Research indicates that most CRE brokerages spend up to four to five hours processing each new transaction. This can involve determining where each agent is in their split plan, setting up and manually producing invoicing, and making agent and referral payments.
The most common platform for managing commission split plans is still Microsoft Excel, which provides limited transparency and considerable room for human error when there is more than one agent per transaction. As automation is introduced into back-office operations, the tools needed to efficiently generate budgets, cash flow management and financial reporting must become instantly available to principals and business ownership.
Technology that can integrate legacy data between applications should figure into the decision-making process for upgrading back-office operations. The strategies should consider whether the platform provides integration with commercial real estate customer relations management (CRM) systems. It should also integrate with accounting software and property-management software.
Existing software solutions often can’t be integrated with new platforms because they were developed with older software applications and closed systems. To provide complete functionality and maximize productivity, determine if it is necessary to upgrade more than one application within the organization to improve operational efficiency.
Transparency between managing principals and agents allows them to see the entire revenue picture of their business. It’s also important for managing brokers and agents to communicate digitally during unforeseen circumstances. This is especially true for inexperienced younger agents, who will need additional support and guidance during situations such as COVID-19.
Having an organized approach that lets brokers track their future opportunities can boost efficiency and lead to a higher closing percentage. A study by the Harvard Business Review found an 18% difference in revenue growth between companies that define a formal and structured sales process, which includes tracking future opportunities, and companies that don’t.
Most of the CRE-centric CRM technology and back-office solutions developed over the past several years include future-opportunity tracking. Some are significantly more complicated than others.
CRE Teleworking Dispute Leads to Lawsuit
Attorney Amy Reggio is suing her former employer, Dallas-area real estate investment and development firm Tekin & Associates, after she said she was fired in late March for refusing to come into the office during the COVID-19 pandemic.
According to the lawsuit, Reggio told Tekin & Associates President Mark Tekin that she could perform her work from home after Dallas County, where she lived, issued a shelter-in-place order that went into effect on March 23. (Tekin & Associates is located in nearby Collin County.) Dallas County Judge Clay Jenkins, who announced the order, made clear that it would apply to county residents regardless of where they work.
“It doesn’t matter if your job is in Fort Worth or whether your job is in downtown Dallas or Plano,” he said during a news conference on March 22. “If you live here, you’re under this order.”
Jenkins’ order indicates that real estate and inspection services in Dallas County could be considered essential and remain open, “but only for the purpose of title work and closing; in-person open houses and showings are prohibited.”
The lawsuit shows that Reggio sent Tekin an email on March 27 that reads, “My hope in writing you this email is that you will stop trying to require me (and other Dallas County residents and residents of other counties with the same orders) under the threat of termination to come to the office in violation of various government orders/laws that will subject me to criminal penalties.”
According to the lawsuit, Tekin immediately fired Reggio after receiving the email.
Reggio had served as general counsel for Tekin & Associates since December 2019, according to the lawsuit. She is seeking $1 million in damages.
Florida Removes Witness Requirements for Leases
As a response to the challenges of doing business during the COVID-19 pandemic, Florida recently enacted a bill that gets rid of the requirement of witnesses for commercial and residential leases.
The Florida chapter of NAIOP lobbied to get the legislation passed. The new law went into effect on July 1.
“The witness requirement is a cumbersome and unnecessary holdover from the pre-digital era,” said NAIOP Florida President Darcie Lunsford, executive vice president of Butters Realty & Management. “This is particularly crucial in the post-COVID environment, where we are looking for ways to limit interpersonal contact while still trying to conduct business, keep our economy going and our buildings full.”