The words "dot-com" may have some stockbrokers and investors raising their eyebrows these days, but leaders in the commercial real estate arena are realizing that the Web and its dot-coms are perhaps some of their best allies.
The growth in commercial real estate's Web presence is due in large part to the strength and advancement of many Web-based mortgage and national/international property listing sites. Those sites not only simplify the purchasing and selling of an asset, but they also speed up a once lengthy and laborious process of locating a site and then obtaining financing to purchase it.
The efficiency aspect alone makes such sites almost indispensable, says John Stanfill, former president of CB Richard Ellis' Property Group. "Here we were, one of the biggest companies in the world selling property, but I was sitting in Los Angeles and I had no means of knowing what my inventory was in Atlanta, New Jersey, Boston or Seattle," he says. "I would have to pick up the phone and call our managers there and ask `What shopping centers do we have for sale?' or `What space do we have for lease?' because it's very much a local market. I just felt there had to be a more efficient way of running an inventory control system."
In 1996, Stanfill hired RealUSA, a small software company, to develop a private label version of its database software as a listings management system for CB Richard Ellis. Within the year, the firm launched the system and soon Stanfill acquired RealUSA and the rights to its technology. A more advanced version of the technology was created for the Internet and is now the base of the Alhambra, Calif.-based PropertyFirst multiple listing service, where Stanfill is president.
Much like its residential real estate peers' Web sites that feature properties, the commercial listing sites allow site visitors to view multiple databases of properties across the country - all without leaving the comfort of one's desktop. In the past, buyers had to contact specific brokers in specific cities for specific property needs. Brokers would have to spend time researching needs and then get back to a buyer. Then, financing would have to be obtained - something that could take at least a month. Add in a possible visit to sites and that equals a lot of time and money.
Today, property-listing sites only require a few clicks to cut the old method of buying and selling property in half. "A Web-based system allows you to get that information into the hands of all of the brokers who might know of tenants in the marketplace and get in front of all of the prospective tenants instantly," Stanfill says. "They can do more business, more efficiently at a lower cost."
Part of the reason Web-based listing applications are so attractive to users is because unlike many software packages, a majority of the Web products do not require a company to purchase individual licenses for each person using the software. Companies like PropertyFirst and San Francisco-based LoopNet allow visitors to browse properties without paying to do so. The sites let users customize searches according to their needs and wants. Generally, the companies listing buildings for sale on the site are the ones who have to pay in order to advertise their properties.
But those Web sites do not survive on listing costs alone. Like their dot-com brethren, those companies find financial backing in the form of venture capital. PropertyFirst lists Insignia/ESG,CB Richard Ellis and RREEF Internet Partners as just a few of its investors, while LoopNet investors include Grubb & Ellis Company, Homestore.com Inc., Insignia/ESG, Marcus & Millichap and Trammell Crow Company.
With such strong backing and by offering such specified service, this arm of the dot-com world should fare better economically than some other recent ventures.
In August 1999, there were about four to five formidable competitors in the Web-based listing market for LoopNet, says Mark McLaughlin, the company's vice president of sales. Last June, the company recognized about 200 viable competitors.
While competition is growing, McLaughlin says he does realize the competition - as in other sectors of the dot-com world - will inevitably drop. "We don't like to see people retreat from the business but the rationalization of the number of different providers in the space is probably going to come down to two to three different providers," McLaughlin says.
But, one visit to many of the Web-based listing sites shows that the companies are not waiting for the natural progression of economics to force them to expand their offerings in order to remain competitive. Rather, they are pushing ahead on their own by creating services that reach beyond listing a property.
Bethesda, Md.-based CoStar Group uses its homepage not only to sell property but also to sell some of its other software packages, such as CoStar ARES 2000 contact management software for commercial real estate. Its tenant software, mapping programs and other various products are also showcased online, with a demo of each. LoopNet offers visitors a chance to design their own company Web site through templates it has for sale on its site, and it also allows visitors to sign up for a weekly e-mail newsletter containing property leads and news. PropertyFirst offers assistance in finding a broker, funding and gives visitors up-to-the minute sports scores. In short, these are becoming the Targets and Wal-Marts of their industry: one-stop shopping.
"Real estate will get to that point where the information and the data is more of a commodity. For the convenience of the industry and to have market efficiency you need to have that data available," says PropertyFirst's Stanfill.
While the idea of marketing this efficiency sounds novel, it really is not, says Heather Shively, co-founder and CEO of CapitalThinking, a New York-based technology company focused on improving the commercial mortgage process. The novel part of the Internet and real estate equation, Shively says, is merging the new and old economies together. "What we realize is the new economy companies can help old economy companies [with product improvement and delivery] by introducing it to new technology."
While CapitalThinking focuses on the mortgage side of commercial real estate, it uses a subscription fee-based Web application to serve its clients. Like the listing sites, CapitalThinking sees the Internet as a source of efficiency that saves time and money - a concept that drives its arm of the real estate industry.
Shively herself is a successful example of how the old and new economies can merge successfully. Prior to co-founding CapitalThinking, she was a director of Bank of Montreal's Real Estate Capital Markets Group, originating, structuring, syndicating and closing more than $1 billion in real estate financing across all the major asset classes. She admits to just beginning to use e-mail on a full-time basis three years ago. But, she says she soon realized the time-saving value and thinks that idea can be directly applied to commercial real estate.
"I think [real estate companies] are very interested in doing business with companies with very viable technologies," Shively says. "The way we're helping is by reducing inefficiencies in the market in terms of time and costs."
CapitalThinking started out providing online funding services to paid subscribers. Like the listing sites, it too has expanded its offerings to provide more specific services. In September 2000, the company (which was only a few months old) formally launched Blueline, an ASP software product that streamlines and automates the loan process, from the origination and indicative quotation stage to packaging, data formatting, due diligence, closing and securitization. J.P. Morgan Mortgage Capital Inc. signed on as Blueline's first customer.
Her company is growing quickly in the shaky sea of dot-coms, but Shively does not see the up-and-down trends in the dot-com waters as anything that will harm CapitalThinking's services or its ability to make the lending process easier for her clients. "At the end of the day, it's all about profit and we have to play a role to help," she says. If that means speeding up the lending process, that is what Shively and her company will do.
Efficiency fuels her company, just as it fuels companies like LoopNet, CoStar, and PropertyFirst. Although many dot-coms have been dubbed "dot-bombs" in recent months, many online service providers have proven they can survive as dot-coms and work in partnership with established real estate firms.
Real estate has long needed to be associated with speed and efficiency, and technology has allowed that to occur. That speed and efficiency then eases the process of completing a deal, allowing clients to then complete more deals in less time, and thus become even more profitable.