In Pursuit of the Three C's

When Dave Clute started his new job with Cisco Systems' real estate department in San Jose, it didn't take him long to realize that he was facing a huge challenge. With hundreds of offices and facilities across the globe, Cisco was generating tens of thousands of facilities management requests, but wasn't able to communicate any of those work orders to its external service providers.

Although Cisco had a customized facilities management software system, its service providers all used different software platforms, making it impossible to transfer the information without manually re-keying the requests or without building customized interfaces so the systems could talk to one another. Moreover, Cisco's terminology wasn't the same language the vendors used. Changing vendors wouldn't improve the problem either because it's extremely costly to buy or create new databases and technology.

The long-term solution, according to Clute and other industry experts, is an industry-wide acceptance of standards, specifically information exchange standards. This information can be transported between different companies and database systems using an XML code.

Fortunately, for Clute and the rest of the industry, efforts to standardize the industry are gaining momentum. Industry groups such as the Open Standards Consortium for Real Estate (OSCRE), a non-profit organization launched by CoreNET Global a little over two years ago, and the Mortgage Industry Standards Maintenance Organization (MISMO) are working feverishly to encourage the adoption and implementation of information exchange standards across multiple sectors of the industry.

The push for data standards has a practical application. Specifications for a new building could be passed electronically from a design/engineering firm to a general contractor for budget analysis, and then on to the sub-contractors and suppliers for procurement and construction.

From there, the information could be distributed to the financial community to obtain funding, and finally downloaded into the building owner's financial management software and facilities management system. The information would also be accessible by the legal, appraisal, title insurance and property insurance groups.

Currently, the bulk of this information is being transferred via hard copy or e-mail and is entered into multiple software systems using the old-fashioned way — people (see chart above).

“This industry is lagging behind others when it comes to technology, so it's taken a while for it to realize that there's not one integrated technology platform that will solve the problem,” says Ian Cameron, OSCRE's chairman of the board. “There are simply too many software providers out there to standardize the product, so we have to standardize the way they communicate with each other.”

Clute agrees, stating that “other industries have created a standard for industry terms and the transfer of information, and commercial real estate needs to do the same.”

Overcoming the inhibitors

Although OSCRE enjoys support from several organizations in the industry, there is still some significant resistance to industry-wide standardization efforts. “A lot of stakeholders have been reluctant to share information because controlling information is how they set themselves apart,” Clute explains. “Software companies that have proprietary systems want to maintain control and extract subscription fees from their users, while brokers and owners don't want some of their information brought to light.”

Historically, transaction information has been closely guarded because it has not always been in a broker's best interest to share information; market inefficiencies can work in their favor. But major corporations who lease and own real estate are much more interested in transparency of information and are pushing much harder for openness. If they have a clear idea of what they have and what is available, these companies can make better decisions and possibly save money.

“If Wall Street, corporate users and real estate owners are looking to the service sector for information, and those companies don't provide it, they will be on the outs with their clients,” Cameron says.

There's also some resistance from software providers who believe that they have already created an industry standard because their software is widely used throughout the industry. In fact, there are well-known examples of how some software firms have used the proprietary nature of their systems to lock in clients for the long term, notes one expert.

“There is nothing stopping these kinds of systems from opening themselves up for more effective integration with other systems through information exchange standards like OSCRE,” Cameron urges, adding that software firms can have their proprietary systems and still integrate through standards.

Standards are so critical to Sun Microsystems that the technology company plans to only deal with firms that have a decidedly clear way of gathering and integrating information, says Keith Perske, a global systems business manager. Previously, none of the company's service providers used the same terminology and their systems weren't compatible with those at Sun Microsystems. Nearly $1 million was spent just to integrate all the systems, Perske says.

“We are so convinced of the importance of standards that we are requiring that service firms comply with OSCRE standards as they are developed,” Perske says. “Service firms that do not have this approach will not be doing business with us, and other major corporations, in the future.”

Hazards of inefficiency

The commercial real estate industry's pursuit of the three C's — efficiency, consistency and transparency — extends far beyond technological advantages. Industry experts say that the free flow of information between all the key players in the industry can generate improved investor confidence and lower transactions costs.

“When we talk about standards, they end up being subtle, silent things, but until they're in place it's a real problem,” explains James Marrelli, vice president of commercial real estate for the National Association of Realtors and a member of the Board of Directors for OSCRE. “At the end of the day, a standard in any industry promotes efficiency, but one will be especially helpful in commercial real estate.”

Without standards, a whole slew of errors and risks show up. In a leasing scenario, if the industry can't agree on the amount of space under a lease, the rent can be miscalculated. During the transfer of lease documents from one party to another, the data can potentially be re-keyed incorrectly. One expert recalls that a major bank in San Francisco lost its most lucrative downtown branch because the lease renewal date was incorrectly entered into its internal database.

“The initiative to standardize all the terms will minimize errors at the very basic level,” says Bruce Kellogg, immediate past president of the Appraisal Institute. “Right now, when you think about building sales and the average price per square foot — when you put the money on the table, you're not going to really know what you've paid for.”

Déjà vu?

Although there have been efforts to establish industry standards in the U.S. commercial real estate industry for years, they have been limited to only certain disciplines, and the standards have not been readily adopted. Today, however, there is a push for industry standards from the corporate side (major corporations who lease, buy and build properties) and the financial side (institutional investors, investment managers and banks).

“This is the first time that these two giants in the industry have gotten behind advances in technology and standards in a big way,” Cameron says.

Several key industry groups are actively working to create industry standards. For example, the Appraisal Institute, the National Association of Realtors, the Mortgage Bakers Association, the National Council of Real Estate Investment Fiduciaries are all currently working together with OSCRE. Large corporate real estate users such as Cisco Systems and Sun Microsystems, along with public sector entities such as the General Services Administration, have joined the efforts. “I like to think of OSCRE as the aggregation of different organizations and their best standards working toward the goal of transparency and efficiency,” says Ward Caswell, director of information management for CBRE.

In assembling a data library, OSCRE has combined all the various standards that exist today and has worked to fill in the areas where standards don't yet exist. Both the Appraisal Institute and BOMA compiled a data library of industry terminology, but have transferred their efforts to OSCRE. In fact, BOMA disbanded its entire technology committee and rolled it into OSCRE, according to David Hewett, BOMA's chairman. In February, MISMO released its first set of data standards for the commercial/multifamily mortgage industry.

“The collaboration between the organizations is occurring because we all realize that the three C's won't occur from just one product or company,” says Dan Szparaga, senior director of MBA's commercial/multifamily business group. In fact, there is a collective realization that even with the advanced software and hardware available today, any future advances in the way business is conducted are being held up by a lack of standards.

Quest for universal standards

The OSCRE approach to commercial real estate is holistic, emphasizes Andy Fuhrman, the organization's CEO. The commercial real estate supply chain, as he calls it, includes a myriad of groups, ranging from city and county planners to design, construction and infrastructure professionals, to the brokerage community, to private and public owners.

“Data elements cross over all those vertical sectors within the real estate industry,” Fuhrman points out. “We're trying to make the information easily accessible to all sectors.” Without standards, it is impossible to link up all the players in a transaction; as a result, people are less efficient, transactions take longer and money flows more slowly through the market.

The practical application of industry standards will be showcased at the CoreNet Global Summit in Philadelphia April 23-26. Commercial real estate professionals will see what's being billed as a first-of-its-kind demonstration showing how commercial property listing information can be easily transferred from a local listing service to a national exchange.

Cameron says that everyone in the industry has something to gain from standards. “Think of what it would be like if you could arrive at work, and all the operating information on all your properties and transactions is sitting right there on your desktop,” he explains. “You don't have to think about whether it's all correct or where it comes from. That's all done in the background.”

Jennifer Popovec is a Dallas-based writer

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