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Interview: The Fusion of Technology, Data, and Regulations in Commercial Real Estate with Chris Atkinson

May 16, 2017
Chris Atkinson professional headshot

Chris Atkinson, CEO of Investor Management Services (IMS), is responsible for the strategic vision of IMS and driving operational excellence during a stage of hyper-growth.  Before joining IMS, Chris was CEO of KnowledgeTree where he guided the company to explosive revenue growth and award-winning product expansion.

Prior to KnowledgeTree, Chris served as Executive Vice President and General Manager of StrikeIron, where he was responsible for the day-to-day management of the organization. In his tenure, StrikeIron averaged 68% CAGR and significant product innovation.  The 440% revenue growth from 2011 to mid-2014 led to StrikeIron’s successful acquisition by Informatica. Chris’ software leadership experience includes executive management, general management, sales, marketing, and corporate development roles at Fortune 100 and venture-backed startups.

What have been the biggest regulatory and legal changes impacting the commercial real estate industry and how have these changes impacted the industry?

  • Rising Interest Rates – Modest economic growth could temper the pace of CRE transaction activity. Volatile global markets have led to continued low interest rates. The Deloitte economics team anticipates the Federal Reserve will raise interest rates in the short-to-medium term. Higher interest rates would increase mortgage costs and potentially decrease real estate transaction activity.
  • Dodd-Frank Act – Two of the most burdensome parts of the Dodd-Frank bill for CRE are risk retention of securitization and the Volcker Rule—which significantly increased the cost of doing business. One of the most anxiety-inducing aspects of Dodd-Frank for the CRE industry and issuers of CMBS is the risk retention requirement, colloquially referred to as keeping “skin in the game.” Investor transparency requirements are a big driver for CRE Tech like IMS.
  • JOBS Act – 506(c) offerings would technically be private placements, made only to “accredited” investors, but could be advertised widely (TV, Newspapers, and via the internet). The SEC was required to remove the prohibition of “general solicitation or general advertising” which has been part of Regulation D since it was formed in 1982 by this Act.
  • Basel III – (the third iteration of the Basel Accords, the framework for international banking put in place by the Basel Committee on Banking Supervision) set regulatory capital rules that went into effect in January 2015 and intended to strengthen bank capital requirements by increasing liquidity and decreasing leverage. The regulation also introduced rules around High-Volatility Commercial Real Estate, or HVCRE, which requires all loans that meet its definition to be assigned a risk weighting of 150 percent for capital purposes.
  • The Future of Fannie Mae & Freddie Mac – There has been concern in the past that the ultimate outcome for these entities could have a material impact on financing for multifamily since they provide by far the largest source of loans on this product type. If they pull in their allocations that would have an impact on IMS multifamily clients. We’re watching closely to see how this will play out under the Trump administration.
  • Cap Rates – If Cap Rates start to tick up, you have an immediate impact on property value.  This can have an impact on transaction volume with any meaningful spike or even if people think cap rates have gone as low as they can. Anything you can take from the regulatory and macroeconomic themes that will drive rates up (increases cost of capital, impacts what people will pay for a property), drive cap rates up (immediate drop in property value which impacts assets they own), reduced lending capacity (Freddie / Fannie pull in allocations or worse outcome), CMBS pull back (typically one of the cheaper sources of non-recourse financing), and demands from equity investors (expecting higher returns for their risk, seeking control rights or covenants that allow them to gain control from a sponsor if things go downhill).

How do you see regulation, data and technology (in the commercial real estate industry) intersecting?

Software continues to eat the world. Real Estate can no longer hold out.  Consumerism: Millennials are beginning to overtake Baby Boomers and are becoming substantial real estate consumers. Today’s investors consume technology in everyday life – and will soon begin to require the group they are investing with to put the necessary tech in place that enables transparency and on-demand access.

  • Investor Transparency (no more Black Box Investing). Technology tailored to the investor should become more common in the near future. Solutions are hitting the market that will allow investors to educate themselves on what property sectors to invest in. No longer do they need to solely rely on the word and track record of a sponsor. These technologies will incorporate regulatory information and market data that is normally segmented and widespread and aggregate it to give investor actionable information. The JOBS Act of 2012 came at a time when people became accustomed to using technology to make investments. Now that one can market deals to larger pools of investors it makes sense to make their deals more accessible with an online portal (Regulation driving industry specific technology).

What have been the advantages and/or challenges of this intersection? What will be the advantages and/or challenges?

Access to information will increase competition on the CRE shop. Investors will become more discerning; tougher to please. As they become more knowledgeable on the market with the help of tech tailored to them, the demand on the sponsor to perform and provide competitive returns becomes greater.

The transition from Baby Boom investors to Millennial investors could be a difficult adjustment for some businesses. As your investor base ages, the pool will need to be replenished with the younger demographic if deal volume is to be sustained or grown.

Many older investors wish to remain offline.  Change is hard if you didn’t come up with technology. While trying to accommodate the youth movement, it is difficult not to alienate the investor who you have been working with for 30 years. The way he/she has done this for so long is a norm that they won’t be very willing to change.

As much as technology can benefit CRE businesses if they embrace it, it is just as important that they navigate the changes technology has brought to their external environment. Physical retail is shrinking due to of the rise of e-commerce, hospitality is losing market share due to the rise of companies like Airbnb, and the office space sector is becoming less essential as telecommuting technologies continually improve (this shift is accelerating as lifelong office space devotees approach retirement and make way for millennials who have not established the same approach and habits regarding office environments and the idea of physical desk space).

It isn’t all bad news though. The industrial sector is picking up in support of e-commerce growth. Companies need more warehouses space and distribution centers to house operations. It is also trendy to convert dilapidated and outdated industrial space into office space right now. And where peer-to-peer hospitality options may pose a threat to the hospitality sector, we can expect them to have a positive impact on multifamily. Apartment leasing should pick up from both people looking for facilities they can lease out nightly on Airbnb and young people who will be able to afford high-end luxury apartments because of the cash flow they can generate by renting them out intermittently.

How have technology innovations, and data intelligence transformed the industry to date?

Data insights are key to providing customer value. Business Intelligence has helped decision makers make smarter investment decisions, improve process efficiency, and enable self-service access to information.

With so much competition in the current CRE market, it has been technology that sets businesses apart from each other. Many groups are using technology from the property level all the way to corporate. For example, they are monitoring property energy consumption remotely on a day to day basis. It is becoming increasingly important to optimize the use of every single dollar of their investments (ancillary benefit – millennials love energy efficiency. This comes into play when they choose where to live or what to invest in.)

How will technology and data intelligence transform the industry in the future?

Data intelligence will allow businesses to optimize their investments in real estate. They will have more insight into property management and gain knowledge on how to increase rent rolls and occupancy rates, etc.
Investor Transparency (no more Black Box investing) -Technology tailored to the investor should become more common in the near future. Solutions are hitting the market that will allow investors to educate themselves on what property sectors to invest in. No longer do they need to solely rely on the word and track record of a sponsor. These technologies will incorporate regulatory information and market data that is normally segmented and widespread and aggregate it to give investor actionable information.

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