Commercial Magazine

Strong Data Is Imperative

Brokers and borrowers need the best information to make the best deal possible

By Rob Finlay

When a commercial real estate investor is evaluating a new deal, trying to determine the value of a property or forming long-term strategic plans, they need to have the most relevant, complete and accurate data possible. Mortgage brokers can help their clients analyze and navigate the data sources available to manage risk effectively while pursuing only the most feasible opportunities and strategies.

“With a complete data set that’s pertinent to stated objectives, borrowers can drive growth, manage risk, and position their assets and portfolios to weather any economic conditions or unexpected risks.”

Market and property data are essential for strategic decisionmaking that contributes to the lasting strength and upside of the investment. But how does a borrower in search of the right asset find the data to help them make wise decisions? Understanding data and how to find it are skills that commercial loan originators will find invaluable when it comes to meeting the needs of clients and helping them develop a stable and growing portfolio.

Planning ahead

It is often crucial to understand where borrowers stand operationally and financially to help guide them through a successful deal. Commercial mortgage brokers must be aware of market conditions — including threats, opportunities and monetary policy. They must also know about asset performance (owned and comparable assets) as well as the client’s strengths and weaknesses.

With a complete data set that’s pertinent to stated objectives, borrowers can drive growth, manage risk, and position their assets and portfolios to weather any economic conditions or unexpected risks. Data fuels analyses and projections, and it promotes objectivity when conducting stress tests for various scenarios or developing contingencies for possible outcomes.

During the due-diligence process in preparing to acquire, refinance or dispose of an asset, brokers require data to calculate a property’s value. This includes finding experienced appraisers who are familiar with the areas where the properties are located. Beyond the basic process of property pricing, brokers also need to help clients understand market fundamentals and property performance characteristics that contribute to fair market values.

Such insights facilitate forward-looking strategic planning rather than merely guaranteeing a good deal upfront. Market and asset performance data also ensure the geographic region and asset type being considered have the potential to foster returns throughout the anticipated life cycle of the investment.

Knowing the property value indicated by the data also helps in negotiations and may narrow the bid-price versus asking-price gap. Both parties to the transaction can test their assumptions and present evidence to support a value that will facilitate a prompt, confident and mutually beneficial closing.

Vital data

Whether buying, refinancing or selling property, data can help to reposition assets and maximize their value. Borrowers can see where expenses are creeping higher along with any shifts in lease rates or rent prices. This information can help them make better decisions.

They can also look at benchmark data to see how similar assets are performing, then compare them to the property in question. This information can aid in planning justifiable strategies to boost their net operating income and property value. The data is important to not only conclude a deal with the most equity possible but to also leverage capital for subsequent loan originations.

It is obvious that data is crucial for business success. Although intuition has a place, reliable decisions require a broad sample size of relevant data. Fortunately, data is abundant, and when commercial real estate buyers and sellers know what to look for and where to find it, they can assemble information to analyze most aspects of the operational environment. There are a wide variety of data types and sources available to mortgage brokers and their clients.

Sources to consider

The following are some examples of where to find information or where to learn how to gather the information needed to make the right decisions. These include benchmark asset performance data sets that can be found through the Institute of Real Estate Management, which offers information such as its Income/Expense IQ reports that cover property financial data. Other groups that offer asset performance data on commercial real estate sectors include the National Apartment Association and the Building Owners and Managers Association International.

Excellent sources of quantitative market research are available in trade publications, as well as reports generated by research and analysis firms like Green Street, Cushman & Wakefield, IBISWorld and the National Association of Convenience Stores, just to name a few. Other sources include anecdotal and data-based evidence from notable economists, executives and other thought leaders who contribute to conferences, trade publications and newspapers.

Transactional data is also available from data aggregators such as CoStar, Reonomy and CoreLogic. There are listing sites such as LoopNet, which is part of the CoStar group of real estate sites. Sources for tax and public records include the offices of county assessors.

Don’t forget about the big picture when looking for information, including demographics and behavioral trends. This type of data can be gleaned from the U.S. Census Bureau, the U.S. Bureau of Economic Analysis and other government agencies. Other sources include private research groups and academic institutions — such as the Institute for Research on Poverty at the University of Wisconsin, which offers links to demographic and socioeconomic data across states, counties and cities.

There are many other types of data resources that may be most relevant for an individual borrower’s situation and objectives. Therefore, brokers should consult with other professionals specific to the markets and asset types their clients are involved with. These people can help to identify appropriate data sources and make the connections required to access them.

Practical application

With the wealth of data and sources available, there is the potential to get stuck in a multitude of data points that overwhelm the investor. Additionally, the best data in the world will not provide significant benefit unless it is transformed from raw information to usable knowledge under a comprehensible format.

Unless the broker or borrower are trained analysts, or have deep experience in their fields and across functional areas and data types, they may not be adequate for generating timely and accurate insights. When this is the case, retaining expert advisors and analysts is worthwhile and generally prudent. Two ways to go about this are to build an in-house team or to bring in consultants.

Developing an internal data collection and analysis team may be a suitable strategy if the investor or operator has the time and budget. But contracting out may be preferable if time and money are limited, such as when a deal is on the table. In either case, ensure the advisors and analysts hired know the market and asset type in question.

Whether working with an internal or external team, a system and specific processes are required for efficiency and accuracy. Data and asset management tools, including tailored software for the asset type and purpose, may provide a cost-effective solution.

Current technology facilitates the aggregation, organization and interpretation of data. Rather than digging through mountains of data, manually breaking through silos or logging numerous hours of labor, commercial real estate companies can leverage technology to eliminate such barriers without excessive expense or an extended learning curve. Once the data is laid out logically and interpreted by analysts, a broker’s clients can create plans and make decisions that account for known variables and likely outcomes.

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With the right data in hand, commercial mortgage brokers and borrowers can feel confident that the decisions they make are the wisest and most informed. The best choices are based on well-developed situational awareness achieved through organized data collection, analysis and reporting. ●


  • Rob Finlay

    Rob Finlay is the founder and CEO of Thirty Capital, an advisory, investment and technology firm serving growth-minded operators and investors. He is a forward-thinking entrepreneur devoted to building companies that support and advance the commercial real estate industry. With expertise in tech-enabled asset management and capital-market services and solutions, Finlay speaks from experience and insight as an active commercial property owner, investor and operator of more than 20 years. He has launched, developed and sold many commercial real estate technology and finance startups. He also recently authored The Wall Street Journal bestselling book, “Beyond the Building: How to Use Innovation to Create and Grow Your Commercial Real Estate Portfolio.”

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