By Luis Amador

If you’ve been anywhere near an office in the last decade, you’ve likely heard all about the era of digital transformation, with an overarching emphasis on data acquisition. This trend – a frequent topic from boardrooms to tech forums – champions expansive datasets, improved data security, and the validation of decisions through data-driven insights. However, this relentless pursuit of more data often overshadows a crucial reality: it’s not merely the volume of data that matters, but the quality of insights and contextual understanding derived from it. While numbers and statistics are invaluable, they do not give you control over the market and the landscape around you, mostly because we simply don’t have the time to process, organize, digest and model the deluge of data from every relevant source.  

Every day, external factors that have the potential to impact their commercial real estate (CRE) portfolios bombard investors and lenders, and many are beyond their control. Staying up to date with the latest developments through industry publications, blogs, social media and local news could easily consume an entire workday or more. And the news cycle’s rapid pace has accelerated so much so that it now precedes and shapes market movements, rather than simply responding to them. Ignoring this dynamic is futile, especially when competitors certainly aren’t. Navigating these news events to distill actionable insights adds another layer of complexity. 

Generative AI (GenAI) is the buzzword echoing around in 2024, and that likely won’t fade. Last year, a Bloomberg Intelligence study projected the market to reach $1.3 trillion in 2023, and a Deloitte survey of global real estate leaders found that 72% say their organizations are in piloting, implementing, or production stages with AI-enabled solutions. We’re definitely in the early stages, but it’s clear to see there are countless potential applications of this technology that can and will change CRE forever. CRE investment firms are proceeding cautiously for many prudent reasons, but there is also overwhelming recognition that now is the time to seriously pursue a range of GenAI solutions and not get left behind.  

One of the most immediate and impactful use cases that have emerged is juicing proficiency of extracting meaningful insights from all the noise. If messy, scattered datasets and news headlines represent a haystack, then GenAI is going to be more adept than human analysts at pinpointing the needles. And beyond that, GenAI goes a step further and can tell you what to do with it by synthesizing information into actionable strategies. It provides an unprecedented ability to anticipate future trends and peek around the corner.  

In the CRE industry, lagging behind competitors can result in missing out on investment opportunities, or worse, facing significant loan defaults. With 2023 finishing as the worst year on record for payoffs of maturing CMBS office loans, the most challenging interest rate environment in 40 years grinding the CRE capital markets to a near halt, the least affordable housing market on record putting pressure on multifamily rents, property insurance costs hitting all time highs with increasing climate-related natural disasters, and a few more major retailers declaring bankruptcy as brick-and-mortar stores continue reinventing themselves,, tracking these kind of secular risks are top of mind for investors right now.  

But were you aware of the warning signs before Red Lobster declared bankruptcy? In a stagnant market, what property sales are actually getting done? Who’s buying, who’s selling and why? What lenders are stepping up and where are they allocating? And what does that mean for the implied value of your properties or how does that change your disposition strategy? Are you informed about every tornado or hurricane nationwide that could disrupt supply chains and distribution centers? You might not be, but GenAI is well-equipped to identify such critical indicators and potential disruptions.  

GenAI will allow CRE professionals to perform their jobs better, and a McKinsey study estimated that GenAI could create $110 to $180 billion or more for the real estate industry. If you’re attuned to potential bankruptcy red flags (such as widespread layoffs, factory closures, leases expiring), you can proactively mitigate risks before they materialize. For CRE lenders, this advanced insight enables actions like revising the CECL allowance, placing loans on an early watch list to preempt trouble, initiating conversations with borrowers to request updated financials, or adjusting loan terms as necessary. This proactive approach can place you several steps ahead of competitors – while they are just starting to respond to emerging news stories, you could have already neutralized the risk in your portfolio entirely. 

While my perspective is understandably focused on CRE, the principle applies universally across all industries. Having access to relevant news enhances your ability to interpret your own data more effectively. As the global focus shifts from accumulating “more data” to homing in on “better data”, GenAI stands as the pivotal factor distinguishing those who advance from those who lag behind. 

Luis Amador is general manager of Moody’s Analytics CRE, based in New York City.