‘Positive Sum Game: Can a Tech-Enabled CRE Acquisitions Process Benefit Everyone’ Roundtable Write-up

Prepared by Patrick Brown, Head of Insights and EU Engagement at BPF
 

Introduction

The BPF and the UK PropTech Association convened a discussion among property and technology experts on to discuss how commercial building transactions might be improved through technology adoption.
 
The discussion was timely, since the demands of COVID-19 had meant that a number of sub-processes in and around transactions had been altered during lockdown to permit transactions to go ahead. In a sense the crisis posed a potential accelerant to digital transformation trends that were present but which might have otherwise taken some time to manifest.
 

Problem Identification

Information Hygiene within Transactions
 
There was a general sense that the time taken to transact was excessive. A key stumbling block was held to be the fact that often data that was required was not in the right place at the right time.
In some cases, the ability to respond to early enquiries when acting for occupiers on straightforward matters such as availability and pricing was unnecessarily hampered.
 
Changing Expectations of Buildings
 
There was a sense that some of the expectations of the market were outstripping industry self-regulation and practice set from above. For example, while there were legislative targets concerning climate action at the economy-wide level, how these translated to the built environment was less well-defined. Nevertheless, owners concerned about regulatory obsolescence would need data relating to the performance of the building they planned to acquire, and well-advised occupiers might request data about a building’s environmental performance in seeking space to occupy. While there was no imperative to hand over data over relatively minor regulatory requirements (e.g. an EPC) it was becoming a standard request in data rooms that environmental data should be provided. However, the format, volume, quality of such data varied considerably. Similar concerns arose in respect of how buildings were being increasingly cognified, which posed challenges for adoption of legacy systems and ensuring that they could be effectively managed, for which again data handover would be required.
 
A further case in point emerged around the likely outcomes of the Hackitt Review and a golden thread of building information stewardship to ensure life safety in buildings.
 
A further stumbling block surrounded the plethora of data standards in use by the industry. This led not only to the necessity of proprietary systems and standards that accompanied platforms, but also nugatory competition around those standards rather than on the basis of level of service and other beneficial aspects for customers.
 
Recognition of the Value of Data
 
Some technology companies represented highlighted that the solutions they had developed aimed at real estate owners had been born of frustration at the ‘rubies in the rubble’ that often accompanied introductions and other phases in the transaction process. Given the frequency of trading of certain asset types and within a relatively small universe when it came to the prime market, information gathered at T=0 would likely be of interest again at T=1. When lined up with third party data, inferences and insights could be drawn that widened the usefulness of this data.
 
The Diversity of Parties Involved
 
The group considered that upstream the transactions process, there were relatively few parties involved and that improvements might be possible and straightforwardly, particularly involving standardisation of document requests and information taxonomy between legal representatives.
 
However, further down the chain, the parties began to diversify and proliferate and it would become more difficult to develop improvements to the process on a grand scale. Instead, only incremental gains might be made, but this might be sufficient to improve productivity.
 
A further challenge lay in ensuring that, in adopting a potential new process, reneging and free-riding was minimised by those seeking to trade for advantage through a lack of sharing information.
 
Vision of the Benefits to be Obtained
 
The group did not frame quantitatively the potential costs to be avoided or gains to be made in adopting improvements to the transaction process. However, the following opportunities were identified:
 
• There was a lack of standardisation in the way that legal experts were expected to report to clients, with a common digital lease report agreed among the lawyers a potential avenue for exploration with OSCRE, LR and HMRC. This would speed up the process, as well as encouraging standardisation further downstream
 
• There was a need for the clients to be more vocal about their expectations and for this to be reinforced from the highest senior levels of the real estate industry. This would then send a clear signal to the long-tail of the industry as well as to product and service providers as to their willingness-to-pay
 
• There was a sense that the due diligence process perhaps needed to parse the reliability of data, and take a more risk-based approach toward its review and collation. Some information around a transaction would derive from regulatory processes and might not need the same level of scrutiny as something provided on the strength of an assertion by the vendor
 
• Proprietary standards and systems were held to not be a helpful environment for competition in the sector; far better for competition to be on the basis of level of service, quality of service and innovation. Therefore, steps to ensure that solutions that addressed aspects of the transactions process that also interfaced readily was held to be a fertile line of future enquiry
 
• There were concerns that some practices were still analogue in a digital world; for example, much paperwork was still provided in a paper form whereas digital format might help in speeding up processes. Note: it was not mentioned whether such digital records should also preferably be machine readable, but perhaps this should be another stipulation
 
• Data rooms around transactions were held to be a beneficial practice when available, but these were on occasion incomplete or not present since the demand for them was inconsistent
 
• Absent from the group were representatives of the more passive investment audience in real estate. Such audiences were unlikely to pay as much attention to the minutiae in acquiring a building. Note: the BPF and UKPA will arrange interviews with some representatives to assess their needs
 
• There was a recognition that the key data points for due diligence were likely canonical across the industry and that it might perhaps be easy enough to put together a short list of recommended data to gather and exchange around a transaction, starting with a limited use case or use cases (e.g. ESG)

Conclusions and Next Steps

• The BPF and UKPA will arrange further interviews with industry experts to test some of the proposals set out above. Recommendations for people to consult would be welcome. Interviews will focus on challenges around ESG and Hackitt outcomes on building transactions and around how the industry is currently using data rooms
 
• Data standards were held to be an important piece of infrastructure for a smoother commercial transaction process. Through the BPF’s involvement with REDF, we are aware of a forthcoming paper funded by UCEM looking at the scope for convergence in industry standards. The BPF and UKPA will also pick up with OSCRE about the prospects for a common digital lease report
 
• The BPF and UKPA will create a process map of the commercial transaction process and the sorts of packages of information required at each stage, and what parties need from the process. This would be intended to examine what further gains could be made in improving the transactions process downstream
 
Acknowledgements
Claire George, Aberdeen Standard Investments
James Forster, BNP Paribas
Patrick Brown, BPF
Chenai Gondo, British Land
Charlie Batten, CBRE
Sharon Jenkins, CMS CMNO
John Cumpson, CMS CMNO
Johnnie Sims, Coyote Software
Florin Iarca, Datscha
Izzy Hease, Ellandi
Nick Bartlett, Eversheds Sutherland
Michelle Corazzo, haysmacintyre
Dion Panambalana, Hogan Lovells
Matt Partridge, Infabode
Majed Chaaraoui, Insurami
Paul Rogers, Integula Consulting
Rob McNally, IREDD
Andy Pyle, KPMG
Richard Angliss, Leasle
Jonathan Avery, LGIM
Nick Brown, M&G
Conan Lauterpacht, M7 Real Estate
Dominic Hordern, Mills & Reeve LLP
Jack Sibley, Nuveen
Antara Sundararajan, Oxford Properties
Valentina Shegoya, Reach/SCV
Jay Ridings, TFT
Sammy Pahal, UKPA