Can Stock Market Like Systems Prevail in Commercial Real Estate?

No one, not even the most traditional of industry professionals, would deny that the Commercial Real Estate industry and all of its different types of transactions is still very paper intensive, manual and time intensive. For a number of reasons, mostly cultural, our industry has resisted the idea of hyper-efficiency associated with the exchange systems seen in other sectors, such as financial services. We all know integrated market systems are possible and, in fact, we now have a best practice to point to in the United Kingdom that very well could be the most advanced in the world.

Whenever we try to predict the future, it is helpful to review the past to look for clues. When discussing integrated electronic market systems which integrate with company systems, it is not likely you will boast of the progress being made in the Commercial Real Estate industry. Having said that, we need to look back to a time when companies were bought and sold based on the paper ledgers provided by accountants and when the concept of integrated market systems like the New York Stock Exchange and NASDAQ were a long way off. Market and efficiency pressures prevailed and the once paper intensive financial services industries now represents one of the most complex, integrated and hyper-efficient trading systems in the world.

The question begs, why can't the Commercial Real Estate industry in the United States get to a more electronic, integrated, seamless market system? One of the reasons is we have a vendor community of information providers who feel it is not in their best interest to share information or create data standards. They, in many respects, feel that it is the proprietary nature of their products that continue to give them an advantage. The second most obvious reason is that the industry has long benefited from disorganized and disparate systems. The concept of the "pocket listing", having information that no one else had, allowed for a great deal of success by professionals and firms.

As time continues to chip away at our industry and other industries continue to implement hyper-efficient business solutions for competitive advantage or pure survival, we will continue to see an improvement in the efficiency of our transactions. You can now buy automobiles on-line but you cannot sign a $3,000 per month lease or close a $10,000,000 investment transaction on-line. Given the fast improving technology and the outside, as well as inside market pressures that our industry is facing, it is only a matter of time before integrated electronic trading and information system exchanges make their way into the mainstream of our industry.

If there is any doubt that this can be accomplished, all one needs to do is chat with Steven Spooner of British Land in London, one of the largest commercial property owners and operators in the United Kingdom. Steven is one of the individuals who have worked over the last few years to help create a market system called Propex, which is quickly becoming the only way to exchange properties in the UK. In a recent demonstration, we saw new property opportunities popping up on a ticker, much like stock market prices on CNBC. The majority of the screen was devoted to internal information from British Land while the top left corner continued to feed information about the market opportunities. Some people would call this a dashboard but what it really represented was a truly integrated market and firm information system.

Steven explained that as soon as a new opportunity hits the market system (yes, instantly!) the data is automatically fed -- in a standardized format -- to internal company systems. At this point, the business analysts review the opportunity -- in a predetermined standardized format -- and determine if it is a project worth considering. If this property meets internal requirements it is then forwarded to the appropriate individuals in the firm, electronically of course, for further review. Steven further explained that in "theory", if all decision makers were at their keyboards, a transaction could be received, reviewed and closed within a 24 hour period, all electronically. Finally, he explained that if opportunities needed to be reviewed in a more private setting, individuals still use the system, keeping all the information in standard and recognizable format. The main difference is that this transaction could not be viewed by the general market, only by individuals who were given permission to access the transaction.

The integration of the Propex market system and the British Land company system is a clear, undeniable example that integrated electronic marketplaces can be created and utilized within the Commercial Real Estate industry. There were a number of factors that contributed to the creation of these systems. The first was recognition by the owner/operator community that a comprehensive market system needed to be created, the second was the willingness to deal with the resistance which was sure to come from the traditional thinkers, and finally, the market was willing to make the financial and time commitments to create such a marketplace. In the end, Propex and the electronic marketplace it represents could well be the most efficient in the world. It is proof that these types of hyper-efficient systems can be implemented in the Commercial Real Estate industry and that it is only lack of vision, desire and/or determination that holds us back. There is no doubt that we will eventually see a market system like this in the United States, the big questions are, when, from where, and from whom it will be initiated.