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Better Real Estate Data

01/04/2016 | By John Cumbelich

In the commercial real estate business, like all complex and sophisticated fields, every market participant relies on market data to succeed.  Good data allows principals such as landlords and tenants to frame lease terms, or buyers and sellers to establish a fair price.

Good data also enables service providers such as real estate and mortgage brokers, appraisers, lenders and contractors both to advise their clients with superior market knowledge, and to price their services competitively.  Data on lease and sale comparables, absorption, occupancy & vacancy rates, inventories, development pipelines, development costs and asking prices are but a few of the tools that market participants use on a daily basis to ply their craft and compete effectively in the marketplace.

In short, it’s fair to say that real estate data is an indispensable tool that the industry can’t function without.  Thus, questions about the where the data comes from, who produces it, and exactly what data is being recorded are existential questions for the present and future of the industry and the individual principals and firms that make a living in the field.

As a real estate services firm that records data, drafts and publishes quarterly reports and advises our clientele based on the result of our findings, we have had to ask ourselves fundamental questions about what data to track and report on.  Essentially, we’ve had to ask ourselves, “what data really matters?”

Thirty years ago I worked for the largest real estate services firm in the world, and I started in the research department.  Their philosophy was simple:  separate all commercial real estate into categories (office building, shopping centers, warehouses, etc.) and then build a database that included every property in a given city or submarket.

Visiting every property was tedious work that frequently left me and my cohort of college aged researchers asking ourselves if anyone was really going to use this stuff.  A real estate lesson that I learned as a green rookie was that when looking at a market in total, the majority of the inventory – in every asset type – was dated, underpriced, functionally obsolete, junk.  The owners of yesteryear’s shopping centers and office buildings held assets that today’s expanding brands wouldn’t think of using – whether due to deferred maintenance, lack of amenities, changing market dynamics, or fundamental shifts in the size and shapes of users.  These latent flaws were best affirmed through asking rents that were at times 50% or more below market, or the final insult, that no broker would agree to take as a listing.  Why, I asked myself, would we track assets that none of the users we hoped to represent, would ever lease or purchase?

Years later when our firm began to grow, I knew two things for certain.  First, we needed to tell our current and future clientele that our firm had a big commitment to market data.  We wanted to be able to underpin our advice against real time market data that we had built ourselves.  Second, we wanted to track and report on the most valuable, relevant and usable data.  Otherwise, our data would be window dressing at best, or misleading at worst.

As we set out to build our database, the lessons I first observed thirty years before weighed heavily on my opinions about the meaning of good real estate data.  Rather than tracking everything and calling ourselves experts, we blew up the model and determined to only count the best in class assets.  Better to be a little bit right I thought, than all the way wrong.

We developed a database that tracks what we call Northern California’s Flagship regional shopping centers.  As a firm that has been deeply engaged in this market for decades and that has relationships with dozens of Fortune 500 users, Institutional owners and municipalities throughout the region, we feel that we have a very strong and sober handle on what “best in class” means.  By choosing the most sought after retail assets in every one of the Bay Area’s nine counties, we provide a geographically balanced snapshot that reports on the market’s ability to secure the most active, best in class brands.  Since these brands are almost always looking in multiple markets, our tool provides a yardstick that scores this market against others.

Today, when we report on the Bay Area marketplace and posit that overall occupancy is, say, 98%, while our peers claim it is only 92%, I take a sigh of relief and feel at ease because I know we are right, because we paid close attention to what we were counting.  We’ve elected to look at the market like the premier owners and users do.  After spending some thirty years in the car driving virtually every Northern California submarket with our clients, we know exactly what they look for and what they can get approved for a new store opening.  Indeed, over the years, we have trained scores of real estate managers along the way, paying forward the timeless lessons about competitive, best in class retail real estate, that the savviest of our mentors taught us a few decades before.

When we say that the vacancy rate is 2%, while our peers claim that it is 8%, what we are really saying is that the market that Federal Realty or Regency Centers or GAP or Trader Joe’s or Dick’s Sporting Goods cares about is 2% vacant.  The owners and users that drive the market, that are the catalysts for 100% of all new development, those who build and occupy more space than everyone else, don’t care about the C class real estate any more than they care about the F class real estate.  We’ve created a database that speaks to the availability and pricing of the kind of real estate that these premier users can reasonably hope to get approved through their real estate committee process.

Our methods clearly vary from those of the macro economist, but our goals do as well.  We are providing powerful and timely data to the owners, users, developers, investors and lenders that push the market forward every day.  We want to make sure that they have at least one place to find information that they can really use.