IMS recently participated in an NREI-hosted webinar that covered and outlook of the commercial real estate industry, including the convergence of capital, regulation, and technology. The webinar featured three leaders in CRE FinTech; Ron Rossi, VP of Business Development with IMS; Adam Hooper, CEO with RealCrowd; and Troy Merkel, Partner with RSM US LLP.
The webinar kicked off with an overview of the CRE cycle, where we are within the cycle, and the market impact we are seeing as a result. Troy suggested that we have entered Phase 3 of the cycle: hyper supply, which creates added caution from investors and tighter budgets for firms and projects. For these reasons, the size of individual investments is decreasing, requiring firms to seek out larger numbers of investors to supply capital. And now more than ever before, investors expect increased trust and transparency in order to feel comfortable with the risks they are taking. Leveraging technology enables firms to provide this transparency with minimal time and effort.
Ron Rossi brought up the involvement of Millennials in the investment landscape and the shifting expectations that they bring to the table. Adam provided an overview of the evolution of investment and shared that 20 to 30 trillion dollars of capital are expected to transfer from Baby Boomers to Millennials over the next several decades. However, to take advantage of this opportunity, CRE sponsors need to modernize some of their processes. Millennials are accustomed to 24/7 access to information through technology. They need these insights to make informed decisions, and they expect this information to be quickly and conveniently available at their fingertips. But 46% of CRE firms cite keeping up with technology as one of their biggest challenges in the next two years, and only 48% have a fully developed digital strategy.
With so many changes and in such a tight market, digital strategy is essential to the success of CRE firms. Troy discussed technology solutions and innovation, emphasizing the importance of accounting software, property management tools, investor management platforms and back-office automation to streamlining operations and increasing yields. He touched briefly on crowdfunding platforms, and Adam delved deeper into crowdfunding and how the JOBS Act lifted the ban on advertising, creating an investor market that is increasingly transparent and open to anyone with a computer or smartphone.
Troy also brought up blockchain and explained how blockchain is different from a tokenized asset offering like bitcoin because it is secured by an underlying asset, in this case real estate. In the commercial real estate space, blockchain
- Streamlines and increases the speed of transactions, making real estate assets more liquid
- Enhances transaction transparency and lowers barriers created by fragmented information
- Improves data accessibility and eliminates silos of data within a firm
The panelists also weighed in on Opportunity Zones and how to utilize capital gains by putting them into opportunity zone funds. An opportunity zone is an economically-distressed community where new investments may be eligible for preferential tax treatment. Opportunity funds are investment vehicles set up for investing in eligible properties that utilize gains from a prior investment. The IRS recently provided new guidance regarding opportunity zone investment, which the panelists discussed. Further clarification is expected to be forthcoming, but this is good information for CRE firms to be aware of.
Despite the current market phase, 97% of investors intend to increase investments in real estate over the next 18 months. Firms that leverage technology will provide their investors with convenience, control, and access, while driving back office efficiency and increasing profit.