Dealpath CEO Mike Sroka on the Increasing Digitization of Real Estate Investments
COVID-19 and the abrupt shift to working remotely put the spotlight on proptech to manage operations and deal flow. However, remote workflows and transparent data will only grow more pressing post-pandemic, as digitization is already becoming a major driving force behind many of the deals being covered today.
Connect Commercial Real Estate recently sat down with Mike Sroka, CEO of San Francisco-based Dealpath, to discuss how real estate investment is becoming an increasingly digital process.
Q: When we’re talking about digitization of real estate, what does that actually look like in terms of the processes that are moving toward a more digital environment?
A: Dealpath has positioned itself as the leading digital platform for real estate investments. We power firms that are involved in the acquisition, financing and disposition of real estate assets, and we really serve as a command center for the front office, to focus on value-add work, to identify and mitigate risk, and ultimately to deliver optimal risk-adjusted returns. I always think of us as pipeline management through portfolio tracking.
Real estate as an asset class has really become institutionalized, where pooled capital vehicles, investment management firms and professionals in the market are creating a lot of efficiencies in real estate. In a more competitive and more complex market, it’s really important to have purpose-built solutions to be able to accomplish this work with great precision and speed. It’s the only way to create that value that everyone is looking for.
Over the past few years, we’ve kind of crossed the chasm in terms of being able to compete in real estate, needing the tools to unlock structured data and being able to operate at scale, to achieve real economies of scale. In order to deploy and return on billions of dollars in capital, you must have purpose-built tools.
Q: Over how long a period has this process occurred?
A: Real estate is the largest asset class in the world and it’s been around forever. Historically, real estate assets were owned by some sort of wealthy family. That really changed in 1960, when Congress passed legislation creating the REIT, with tax benefits for pooling capital in real estate. The ‘80s and ‘90s really brought the rise of private equity as an additional vehicle for pooling capital.
At this point, real estate is driven by institutional ownership, with higher levels of standardization and transparency. We believe that the future of real estate investment management is really more programmatic portfolio management and transaction execution. But it’s going to take a lot of work to get there. The first steps are, how do we organize and structure all of the data that these firms have access to and start visualizing it so that they can be more data-driven in their decision making and start automating some of the steps along the way. And that’s really what we’ve been working toward.
In the past couple of years, firms have been cobbling together generic software, using Excel spreadsheets, Word documents, checklists and email as the first steps to being able to work better. But there’s been more focus here, more realization of what’s necessary to create value. We’re seeing more purpose-built tools, specifically for parts of the real estate ecosystem.
For real estate investment teams, the two fundamental challenges that we see these firms facing today are first centralizing the data that is globally accessible and highly performing. They have access to lots of data; however, if that can’t be brought together in one place and easily manipulated, then it is not as actionable as you’d like it to be.
The second is really around complex collaboration. These real estate transactions that are measured in the tens of millions, hundreds of millions, billions of dollars are really complex projects. Accuracy and speed are so important, and those things come into conflict. So having coordination across your team internally and externally, as well as with different partners and systems, is a place where there’s a lot of opportunity for operational efficiency and operational effectiveness.
We believe that there’s a bright and I would say inevitable future ahead where real estate will start to look more similar in some ways to the equity, currency and debt markets among the four major asset classes globally. We see increasing regulation, and there will be accounting and standards and listing requirements for real estate. We see there being increasing liquidity with the growth of online exchanges and electronic trading. Again, this is being driven by institutional investors and top brokerage firms—the largest, most sophisticated pools of capital and advisory services. And the stakes are high. This is the largest asset class in the world and these are big businesses that have a lot to lose and a lot to gain. It’s exciting to see these changes in this key part of our economy.
Q: We’ve heard in the past several months about how the pandemic has accelerated the adoption of proptech. But you have to wonder whether in the case of larger institutions, this hadn’t already become the norm prior to the pandemic.
A: I would agree. COVID has been a catalyst that has called for an acceleration in the adoption of real estate software services. But I would point out a few things we’ve observed. First, over the past year, first there has been an obvious shock to the market, where all of a sudden, with the necessary changes in behavior and human patterns, the highest and best use of property has changed. Valuing these assets has changed; the underwriting is really tricky, evaluating cash flows of these assets with these big unknowns has been very, very hard. So every portfolio manager in the universe has been frantically trying to understand the impact on their own portfolio and evaluate a potential repositioning as well as opportunistic investments. This led everyone to lean in to understand what it means and how to move forward.
Second, many companies and teams were used to working together. They had an investment committee meeting in an office, in a conference room every Monday, working shoulder to shoulder with their colleagues. That instantly went away, and really put a spotlight on the needs that were bubbling up, such as the need for centralized data that is globally accessible. If your team can’t access the data from wherever they’re working, that’s a problem. Having standardized workflows that empower your team to work effectively when they’re out and about has become a necessity for every business.
Third is really around data security. Firms are needing to track and manage all of this critical information indifferent cloud services. They have a new need around understanding data security to protect their valuable data assets. So what we’ve seen over the past year is a big acceleration in adoption. Something that was growing for many years before has hit an inflection point and it has become clear why it is a necessity—a need-to-have, not a nice-to-have.
Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces.
Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications.
Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).