William Sankey, CEO of Northspyre
As we approach the second anniversary of Covid-19-induced volatility and supply chain disruptions, predictable outcomes in commercial real estate development are few and far between.
This unpredictability has served as a catalyst for tech adoption in the traditionally tech-stagnant commercial real estate industry. Historically, real estate development was a very old-fashioned, relationship-driven business. As a former New York City developer, I remember brokering deals and negotiating partnerships over dinner and at networking events. It was an incredibly gut-reactive and instinctive process—from sourcing capital partners to leveling vendor bids.
Much of that has evolved in a relatively short period as a result of the pandemic, particularly for major developers who cannot afford to spend tens of millions on unexpected project cost overruns. Today, developers continue to deal with pandemic-related logistical constraints, labor shortages, delayed material deliveries and health concerns that can significantly impact project delivery timelines and budgets. Having a tactful and streamlined approach to development to mitigate that risk and guarantee more predictable outcomes is critical for project success.
Solving A Decades-Old Issue
Earlier in my career, I managed ground-up developments and oversaw major renovations in metropolitan areas like New York City. I found the job of project management to be incredibly taxing and inefficient. We were managing upwards of 200+ vendors—everything from bids and contracts to monthly invoices and change orders—within Excel spreadsheets. Because of this, we had limited visibility into project data, which made us more susceptible to error and poorly informed decision-makers.
I have witnessed firsthand how the pandemic has exacerbated the setbacks developers were already facing while introducing persistent supply chain challenges that further jeopardize project outcomes. In a Covid-19 impact survey conducted by NAIOP this past summer, 86.6% of developers reported project delays or shortages in construction supplies. This major supply issue coupled with pre-existing inefficiencies and a lack of centralized data to inform decision-making continues to lead to budget overruns and delayed project delivery.
While commercial real estate development can feel as though you are walking blindly through a minefield of potential risk—I know I often felt this way—the industry is finally trending in favor of technology as a much-needed tool for risk mitigation. Developers are taking destiny into their own hands by leveraging intelligent platforms to organize and store their historical data in a way that is easy to understand. (Full disclosure: My company offers such a platform, as do many others.)
Tech-Driven Innovation In CRE
What many developers may not know is that while integrating tech into project workflows and budgeting undeniably increases efficiency for their current projects, it also sets developers up for success on their future projects. I often hear customers express that by leveraging tech, they have been able to track and report budget updates to their financial partners more promptly and efficiently. I have noticed that the teams who are able to stay one step ahead in terms of budgeting build the strongest relationships with their financial partners, making it easier for them to secure financing for future projects.
Ultimately, the adoption of tech in the industry has shown us that commercial real estate development no longer has to be a game of chance. It is vital for teams who want to stay ahead of the competition to capitalize on the industry’s shift toward tech solutions for project management. I am finding that development teams who optimize their data with intelligent software can deliver very ambitious projects within their budget and timeframe—a huge accomplishment given the continuing unpredictability of the pandemic.
What may have started as a reactive measure against Covid-induced supply chain issues and labor shortages has quickly evolved into much-needed advancement into the future of commercial real estate development. Developers are weaponizing their data, wielding historical insights as a shield against the common pitfalls of traditional development and ultimately providing more predictable project outcomes.