The Future of Property IN FOCUS 2021
DATA ANALYTICS Deeper insights support better decision-making Featuring CHAOS | PfP Capital
A CHANGING INDUSTRY PropTech, SpaaS, ESG lead innovation and disruption
EVOLVING CDO ROLE Chief data officers critical to business transformation
A pioneering approach to placemaking and ESG
PfP Capital is an ambitious fund management business, born from a great heritage at Places for People Group. We deliver stable returns and ongoing value growth across our suite of residential-led funds. We pioneer a market-leading holistic approach to placemaking and ESG to deliver quality homes and places across the UK. Find out more today at
pfpcapital.co.uk PfP Capital Limited is Authorised and Regulated by the Financial Conduct Authority (FCA) under FRN 775636
CONTENTS
04 INSIDE THIS ISSUE… 04 THE GROWING ROLE OF DATA IN REAL ESTATE INVESTMENT
By A. Paris
06 INNOVATION, DISRUPTION AND CHANGE IN THE WORLD OF REAL ESTATE INVESTING
By Alexandra Notay, PfP Capital
08 DATA INSIGHTS TO DRIVE REAL ESTATE TRANSACTIONS
By Paloma Bautista, CHAOS
06 PHOTO CREDIT: TAPIO AUVINEN
11 DIRECTORY
08 Published by: Property Funds World, 8 St James’s Square, London SW1Y 4JU, UK www.propertyfundsworld.com ©Copyright 2021 Global Fund Media Ltd. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. Investment Warning: The information provided in this publication should not form the sole basis of any investment decision. No investment decision should be made in relation to any of the information provided other than on the advice of a professional financial advisor. Past performance is no guarantee of future results. The value and income derived from investments can go down as well as up.
THE FUTURE OF PROPERTY IN FOCUS | May 2021
www.propertyfundsworld.com | 3
OV E RV I E W
The growing role of data in real estate investment By A. Paris
L
ike most other economic sectors, property investment had to re-invent itself in view of the Covid-19 pandemic. As some parts of the market, like hotels and retail businesses, were hit hard, others like data centres and large warehouses flourished. As the outlook is becoming more positive given the global vaccine rollout, investment managers should re-assess the resources and support they need to succeed in this environment. “Momentum in global office markets remains subdued, with Q1 leasing volumes down 31 percent on Q1 2020. However, there are now tentative signs of an improving outlook with leasing activity in some countries including China back above pre-pandemic levels. Retail and hospitality, the two sectors most directly impacted by social restrictions, are continuing to face challenges. The logistics sector, the standout performer throughout the pandemic, maintained its robust growth in Q1,” says Jones Lang LaSalle in its Global Real Estate Perspective for May 2021. Despite the difficulties the industry faced as a whole, real estate opportunities remain attractive. BlackRock outlines the market “offers investors the chance to invest in attractively priced properties that aim to provide 4 | www.propertyfundsworld.com
a regular income with the potential for capital growth.” The asset manager notes real estate can provide a stable income potential for capital growth. These assets also offer a pattern of returns which differs from those of traditional equities and fixed income. In addition, BlackRock explains there are dislocation opportunities due to Covid-19, “where under-pressure financial markets have not reflected the quality of a number of properties in their price. We believe volatile financial markets and an uneven economic recovery have created an opportunity to buy attractive properties at prices that do not reflect their true value.” In support of this belief, BlackRock is starting to invest more in sectors facing a more volatile future, such as bricks-and-mortar retail and hotels. These sectors, as also highlighted by Jones Lang LaSalle, can deliver significant returns as economies slowly start to emerge from restrictive measures. Data alone is not enough Although the outlook for the real estate sector is a lot more positive than it was a year ago, there is no denying things have changed. THE FUTURE OF PROPERTY IN FOCUS | May 2021
OV E RV I E W All organisations, regardless of size, should include a chief data officer (CDO) or head of analytics in their data transformation planning. Data literacy, an essential component of a data-driven culture, must become a core competency of leadership within the enterprise, even if the CDO role is outsourced. Linda Isaacson, Ferguson Partners
“The depth and breadth of economic impact on the real estate sector is uncertain, just as the scale of human catastrophe from the pandemic is yet to be seen. However, behavioural changes that will lead to significant space becoming obsolete in a post-coronavirus environment seem imminent. “Given the potential for transformative changes, real estate players will be well served to take immediate action to improve their businesses but also keep one eye on a future that could be meaningfully different,” advise Vaibhav Gujral, Robert Palter, Aditya Sanghvi, and Brian Vickery at McKinsey. Technology is one of these key changes the real estate industry has had to embrace. For example, real estate investment managers have been exploring potential locations virtually and making deeper use of data analytics. Access to data is relatively straightforward. According to CHAOS, the urban forecasting company, the challenge real estate professionals face is figuring out how to leverage data science for maximum impact, bridging the gap between scattered data and holistic insights. “Data on its own is not enough. The usage of advanced analytics tools that, on top of mining timely data, provide a package of information capturing location and market state, and produce good predictions, can make a huge impact on ROI and profitability,” the company says. In addition to encouraging real estate investment managers to build relationships with trusted third-party partners to assist, this trend is also leading to changes in the internal resources needed within the firm. “Having the right people and processes to govern data and its transformation will determine the long-term winners in a rapidly changing environment,” writes Linda J. THE FUTURE OF PROPERTY IN FOCUS | May 2021
Isaacson, Ferguson Partners, in an article for NAREIM, the industry association dedicated to the business and organisational strategy of real estate investment management. “As the focus shifts to building predictive and prescriptive models for data innovation… All organisations, regardless of size, should include a chief data officer (CDO) or head of analytics in their data transformation planning. “Data literacy, an essential component of a data-driven culture, must become a core competency of leadership within the enterprise, even if the CDO role is outsourced,” Isaacson notes. The role of the CDO is evolving across the investment management industry more broadly. A paper by Deloitte entitled The evolving role of the chief data officer in financial services: From marshal and steward to business strategist argues: “The CDO’s job description – for the most progressive organisations – has evolved from its initial focus on data asset gathering, governance, and stewardship to proactive business enablement, with many institutions even marrying the CDO and chief analytics officer (CAO) roles into a single senior-level position. “This is especially true for organisations that aggressively seek to leverage data science and advanced analytical modelling to generate new insights into the markets and customers they serve, the products they build and price, the risks they assume or pass on, and the means by which they operate the business to benefit stakeholders. Organisations today need senior leaders to not only manage and govern the data, but also to leverage the data using emerging technologies that can generate actionable analytical insights and tangible business benefits.” In view of this, the role of outsourcing within real estate investment management firms is bound to become more prominent. A survey by Deloitte shows how already in 2019, a large number of investment managers were re-thinking their operating models, outsourcing strategies, IT tools and investments in technological innovations. This trend will have been further accelerated by the pandemic which acted as a catalyst for an increased focus on data science and analytics. n www.propertyfundsworld.com | 5
P F P C A P I TA L
Innovation, disruption and change in the world of real estate investing By Alexandra Notay Drones and disruption The word ‘drone’ has become something of a standing joke with my colleagues, alongside ‘customer expectations’ and ‘storage’ as a sort of Buzzword Bingo for those poor souls who have heard me mention them in almost every meeting since 2015. I was an early adopter of mandating inclusion of drone delivery pads in our larger residential building specifications and had been giving all sorts of ‘Future of Residential’ presentations to real estate conferences from Australia to MIPIM for years so this was to be expected. One of the many areas of change in current UK planning policy is around how to safely accommodate the proliferation of drone and other robotic deliveries and their related infrastructure as our appetite for deliveries shows no sign of abating. It is unsurprising that the wider real estate industry has remained stubbornly analogue until fairly recently. The pre-eminence of a tried and tested model focussed on ‘bricks and mortar’ assets in core locations delivering reliable IRRs over long-term leases seemed utterly dominant, until it suddenly wasn’t. Tech has certainly been a key disruptor across every real estate asset class; first the threat of online shopping vs in-store retail, then the advent of working from home and demand for flexible office space challenging the historic fixed office model, AirBnB and short-term lets pushing hotels into a far more competitive mode and, of course, the ultimate curveball of Covid-19 disrupting everything in its path. In parallel the evolution of Corporate Social Responsibility (CSR) and sustainability policies from an oft-dismissed ‘greenwash’ sideline to established Environmental, Social and Governance 6 | www.propertyfundsworld.com
(ESG) metrics that are absolutely core to investment allocation have forced multiple waves of change across every business sector. Larry Fink’s annual letters to BlackRock investors have heralded that change, highlighting that “climate risk is investment risk” and that financial performance without “social purpose” was no longer deemed to be good enough. Space as a service and the crystal ball Real estate investors, developers and operators are now grappling with the need to be innovators, disruptors and futurists, all the while maintaining successful portfolios and growing stable returns. As real estate and technology strategist Antony Slumbers notes: “it’s not the case that everything you already know about real estate is no longer important, it’s just no longer sufficient.” We are now dealing with buildings that are still inherently illiquid assets at a time where flexibility and adaptability are the top priorities and the previously rigid lines between asset classes are increasingly blurry. Ten years ago the ULI/PwC Emerging Trends survey didn’t even count residential as a major asset class, instead listing it under ‘Alternatives’ yet now residential investment is the fastest growth area with a proliferation of new offers from PBSA and BtR to co-living, senior living and a whole range of affordable or shared ownership products. A much-heralded ‘wall of institutional money’ is shifting across from traditional office and retail investors seeking the stability of residential rental returns – before finding that the complexity of dealing with homes comes with vastly greater regulation, differentiated risks and that THE FUTURE OF PROPERTY IN FOCUS | May 2021
P F P C A P I TA L stabilised portfolios up for sale are few and far between. Operational businesses used to linear landlord-tenant ownership models are trying to shift to the concept of ‘Space as a Service’ or SpaaS; where asset ownership and physical products becomes subservient to the monetisation of access and services within a physical space. Examples include the move from CDs to music streaming, from fixed office leases to flex office space or fully remote teams, or from side-stepping the fabled ‘housing ladder’ with a punishing mortgage deposit requirement for the adaptability of a Build to Rent tenancy, enabling a lifestyle that offers security of tenure but absolute flexibility with all sorts of services and amenities included. This expanded range of residential tenure types are themselves market disruptions in the UK but each have distinct viability thresholds, return profiles and require nuances in approach before you even add in the revelation of ‘tenant as customer’ with an expectation of good and ever-improving service. So RE investor heads are no longer mimicking ostriches in the sand but the crystal ball that fund managers have to look in is murky at best when considering exactly how to futureproof portfolios. Fun with future proofing One example I’ve used repeatedly is that “everyone wants to be the iPod, not the minidisc”. The latter was a technologically perfect piece of kit, still adored by many music aficionados but the tactile design, overwhelming ease of utility and futuristic aura of the iPod led to its dominance being quickly asserted. Compare this to the bold future proofing efforts of one multifamily developer who toured me around an 800 unit scheme on the East Coast, shamefacedly pointing out an unusual ‘candle nook’ recess near the entrance of each apartment. It turned out that they had designed in an iPhone docking station into every single apartment at quite significant cost; which initially proved to be a popular selling point to tech-savvy renters. Yet just three months after the building opened in 2012, Apple suddenly launched their new Lightning port charging cable with the iPhone 5 and subsequent handsets, rendering what had been a market-leading innovation an expensive redundancy across the asset. Ideally we would all
like someone else to go first and address all the thorny and expensive problems in a swiftly replicable pilot. This cautionary tale isn’t to put off bold fund managers from exploring innovations across their portfolios but a reminder that too often we fail to remember that we use the word innovation for too many things. As decades of academic research has shown, innovation isn’t just technology and seldom follows efficiency criteria! AI chatbots, delivery drones and air quality sensors are all brilliant inventions but do not on their own constitute the innovation and disruption of systems, markets and networks that real estate needs. Professor Marc Ventresca, guru of strategy and innovation management theory at the University of Oxford, underlines that “Innovation is about recombining and repurposing (all of those products and ideas) to create value.” At the moment within PfP Capital we are running some pilots around Electric Vehicle charging having received numerous queries from existing and potential residents prompting interesting team meetings where colleagues discuss the merits of their own hybrid vs. all-electric vehicles. However, discussions with any engineer lead to dire warnings about the lack of capacity to actually support an all-electric revolution across buildings and cars, and others point to the rapidly improving pilots of hydrogen-fuel as the true sustainable future. Would it be better to wait for hydrogen technology to be perfected or might that risk an exodus of residents, or us not meeting our commitments around sustainability and working towards Net Zero Carbon? What other ways could we support sustainable transport in our communities without creating accessibility issues for disabled residents who don’t want pavements blocked by charging cables? There are a multitude of questions we are working on across our residential funds and I for one find it endlessly fascinating, so intend to keep on droning on! n Alexandra Notay Placemaking & Investment Director, PfP Capital Alexandra Notay is Placemaking and Investment Director at PfP Capital, the fund and asset management arm of Places for People Group, overseeing a UK-wide residential strategy. She is an internationally recognised expert on build to rent, placemaking and sustainable urban development, with 16 years’ strategic advisory and investment experience to private sector, government and third sector organisations across four continents. She is also a non-executive director of Essensys plc, Sound Diplomacy, SouthWest Board Member for LandAid and trustee of the SunScreenIT Foundation.
THE FUTURE OF PROPERTY IN FOCUS | May 2021
www.propertyfundsworld.com | 7
C H AO S
Data insights to drive real estate transactions By Paloma Bautista
T
raditionally, the real estate industry has taken investment decisions on a case-by-case basis based on limited data, such as that from transactions, property owners, or type of investment, and that from personal networking. The insights produced in this case-by-case model easily become outdated in a constantly changing ecosystem. The current pandemic has impulsed digital transformation around the globe and forced the adoption of methods that deliver fact-based responses in a timely manner. Decisions based on outdated data and personal knowledge are not sustainable. We need to look forward, detect trends and understand how the world, its citizens, and their needs are changing. “At the heart of CHAOS we believe that insights driven by demand — in other words, people — provide more accurate predictions and forecasts to support decision-making in real estate,” says Natalia Rincón, PhD in Smart cities and CEO at CHAOS. Today, there is more than enough information that can be analysed together to better understand the performance of specific locations. Yet, the challenge that real estate professionals face is figuring out how to leverage data science for maximum impact, bridging the gap between scattered data and holistic insights. Bridging the gap between data and business insights In order to stay ahead of the curve in a fast-changing
world, different players in the RE industry need to continuously monitor the market pulse. “In addition to the traditional macro-level insights, actionable micro-level insights at a neighbourhood level are crucial to get a comprehensive market overview that enables sustainable decision-making,” says Valeri Tsatsishvili, PhD, Data Scientist at CHAOS Data on its own is not enough. The usage of advanced analytics tools that, on top of mining timely data, provide a package of information capturing location and market state, and produce good predictions, can make a huge impact on ROI and profitability. To illustrate this, below we explain some examples from our experience in working with real estate investors and developers to provide such business impact. Case 1: Identifying the investment opportunity – what and where to invest? Advanced analytics can be used to support your market analysis with a quick yet detailed view of an area and its investment opportunities, including: • Demographic forecasts and population density – The property demand of a specific location can be estimated more accurately by forecasting the changes in the demographics of the area (e.g. age, gender, income, unemployment rate, and generation cohort). It is also crucial to know how specific demographic segments are concentrated in the city and where your target client group is located (see Figure 1).
Figure 1
8 | www.propertyfundsworld.com
THE FUTURE OF PROPERTY IN FOCUS | May 2021
C H AO S Figure 2
Case 2: Insights for a profitable rental property – measuring the attractiveness level of your property During or after an investment has Figure 3 been done in a rental property, a closer look at the area helps to plan a long term profitable property. To maintain a high occupancy rate, a neighbourhood needs to be attractive. We suggest the attractiveness level of your property to be measured at least according to its location’s following parameters: • Living Convenience – Matching the service provision, the reachability, and the type of tenant group lets you know how convenient to live in an area is. • Growth opportunities – Under standing how the area will develop in the future is a critical insight to help plan rent levels. CHAOS dashboards provide a growth level score based on the new and approved development by the municipality. • Economic development – Healthy income and job opportunities are signs that a neighbourhood is experiencing growth. For example, a high-income area can indicate that its residents and those who want to become one have enough purchasing power to rent or buy high-class assets. Big data insights and forecasts play a fundamental role in acquiring a comprehensive understanding of locations in relation to project feasibility Predicting demand based on socioeconomic attributes at a neighbourhood level enables real estate investors, developers, architects, and other agents, to understand their property segment targets to better plan residential and commercial investments. Moreover, understanding a location’s character and THE FUTURE OF PROPERTY IN FOCUS | May 2021
potential in support of your proposal will reduce the risk of your investment and development decisions. Measuring the current and upcoming competing property supply in the area and finding out how the area compares to other potential sites based on its accessibility, service provision, and attractiveness will enhance your project’s feasibility. n Access CHAOS’ market insights and forecasts www.chaosarchitects.com
Paloma Bautista COO & Co-founder, CHAOS Paloma Bautista provides leadership and vision to ensure the business has effective people, operational controls, and administrative and reporting procedures in place. She actively pursues sustainable urban development powered by technology, data, and people, as the key to creating liveable cities for everyone. She holds a Master’s in Architecture and worked for the consultancy company serving Spain’s Ministry of Development.
www.propertyfundsworld.com | 9
PHOTO CREDIT: TAPIO AUVINEN
• Market performance – The financial value of an area can be understood by looking at the average value of the transactions in the market and getting a quick overview of its rent levels (see Figure 2). • Attraction points – Understanding people’s daily use of the built environment will reveal what are the most vital places at micro level (activity hubs) where people are spending time outside working hours (see Figure 3).
D I R E C TO R Y
CHAOS is the urban forecasting company for real estate investors and city developers. Our AI-platform solution provides a better understanding of cities’ complexity in an easy and intuitive map-based dashboard. We process urban data and crowd insights to forecast city investments and development which create more liveable cities and ensure high-value deals for our customers. With our indexes and machine learning models, we identify those emerging trends impacting real estate decision-making, from city to neighbourhood level (macro to micro-level). Through deep analysis of crowds, urban environment, and customer assets, CHAOS detects investment and divestment opportunities, rentability possibilities, neighbourhoods’ attractiveness and living convenience, and character of areas, among others. Our indexes are accessible through on-demand licenses to our multi-stakeholder dashboard.
www.chaosarchitects.com
Contact: Natalia Rincón | natalia.rincon@chaosarchitects.com | +358 40 9359 824
PfP Capital is a fund & asset management business established by Places for People Group. Its objective is to create a suite of residential funds, raising equity and investing in regeneration and rental property across all tenures including established PRS, Build to Rent, retirement and affordable homes. Leveraging Places for People Group’s expertise in placemaking, property management and social value, PfP Capital adds FCA-regulated fund management expertise to offer investors stable returns and ongoing value growth
www.pfpcapital.co.uk
10 | www.propertyfundsworld.com
Contact: Chris Jones | chris.jones@pfpcapital.co.uk | +44 (0)20 7429 0441
THE FUTURE OF PROPERTY IN FOCUS | May 2021