Much to the delight of real estate investment companies, it appears that several leading real estate investment management software companies are now introducing products that illustrate that they truly understand real estate investment. These software companies are the ones ahead of the curve. They are the ones who understand that much about real estate investment management, like other types of investment management, simply consists of a process with a few good communication challenges thrown in for good measure. These enlightened software vendors know that, as in the past, technology will drive out the less efficient players in the real estate investment markets. These vendors' products are designed to provide the utmost of efficiency in facilitating the flow of information and communication during the investment management process. These software companies may pay the premium for being entrepreneurs but will also probably reap the rewards of venturing out on the curve.
The future of the real estate investment management component of the financial services industry, especially in the institutional segment, will center on the desktop investor, much like the desktop publisher transition of the 1980s. The desktop publisher took what previously consisted of many disjointed and disparate publishing functions and combined them into a single, integrated, process-oriented software tool. The overall result was the ability to take ideas and produce published results in a single application. The desktop investor role will be similar: Take investment ideas and produce a finished investment.
The new desktop investor will reside on the desktop of every progressive real estate investor and real estate adviser and combine many previously disjointed and disparate real estate analysis, property management and Internet-related software components. Those real estate investment companies who are early adopters of the concept will likely reap the same rewards of efficiency that accrued to the early users of desktop publishing; they will get to stay in business.
As the accelerated communication, flow and control of real estate investment information becomes more accepted and understood, real estate investments will be purchased in an electronic marketplace. Will it function the same as today where buyers simply respond to electronic listings and begin negotiations from there? Not by a long shot. Investment transactions in the age of the desktop investor will eclipse the proud late-'90s concept of electronic listings. As real estate markets continue to develop, the increased volume of electronic transactions will improve efficiency during every phase of the transaction.
What does all of this mean for the here and now? Two issues are critical: data integration and data access. First, for budgeting, forecasting, valuation, property management and general ledger software applications to achieve the seamless integration required for realization of the desktop investor concept, it is critical that they have native open database architecture. Second, immediate access to accurate online data is a prerequisite to enabling the desktop investor to process, analyze and communicate relevant data for successful investment decisions. Is the desktop investor of tomorrow going to be satisfied and successful if he isn't able to instantaneously access, with complete accuracy, data regarding the future revenue streams of all leases in the trophy property they are about to purchase?
Of course not. The old financial analysis tools that rely on exporting their data, rather than having the data current and immediately accessible in an open database environment, are by definition excluded from the world of the desktop investor because you never know if the source financial data has been updated since it was last exported.
As REITs continue to amass their own troves of properties, they will realize that the buildings they hold and the buildings' associated cashflow, book and tax income streams aren't that much different from stocks held by other investor groups: As an investor, you buy, hold and sell. Sure real estate is an illiquid asset. Sure it sometimes has complicated ownership structures. In the early days before they were publicly traded, stocks had some of these same characteristics. Is the real estate industry necessarily required to suffer from the lagged and delayed financial information that characterizes it today? I dont think so. Neither does Wall Street.
Integrating their own valuation, forecasting and asset management products with those of other software vendors and the Internet will be the greatest challenge for many investment analysis software vendors. The insightful vendors whose products are designed explicitly for sharing information in the appropriate manner will accomplish this first, and best.
Prediction - we will not recognize the real estate segment of the financial services software industry in five years, but many of the same players will still be at the top of the market. Not too long ago, the Internet was a distant concept to most people. It will be the backbone and lifeline of the desktop investor. The software companies that collaboratively integrate their products into the desktop investor, and communicate its desirability to the market, will be the winners.