No Building Left Behind: How to Unlock PropTech at Scale
Some real estate companies are dedicated to a specific asset type. While there is some inherent risk in tying fortunes to a specific market segment, it does make things much simpler from a technology adoption perspective. When all the buildings in a portfolio are similar, companies can deploy and scale a tech stack that neatly fits their requirements and capabilities.
In many large portfolios however, assets under management are varied in terms of property type, age, and market tier. This makes it difficult to deploy a uniform tech stack across a portfolio, which leads to siloing, limited scalability, and other operational headaches. To make matters worse, newly acquired assets will often have systems in place which must be integrated or replaced, either of which are expensive options.
Large portfolios understand that they need a tech strategy to remain competitive long term, but the sheer size of the business does not allow for piecemeal solutions. For a strategy to be effective for a diversified portfolio, it must be both scalable and flexible, so no buildings are left behind.
For a platform to be applicable to a wide range of use cases, it needs to deliver a range of tools that make sense for the needs and resources of completely different asset types. To illustrate how this looks in practice, we’ll go through a set of hypothetical examples of a comprehensive operations platform serving the needs of each of the major food groups in a diversified real estate portfolio.
This is a 300,000 square foot residential building in New York City. There is a super who is overworked and not highly trained, two technicians who work in several buildings in the area, and a number of third party service providers. The equipment at this property works for the most part, but it is old and there is no central control system to help run the building.
Like most multifamily assets, equipment is run around the clock due to the unpredictability of tenants’ schedules. The building staff tries to get to their preventative maintenance rounds, but most of the day is spent addressing unplanned emergencies. Likewise, while some issues are avoided with maintenance, the operators often don’t know a problem has occurred until they get complaints from tenants.
In order to run the operations in this building more efficiently, to lower costs, and to ensure a better experience for tenants, the capabilities of the limited staff can be greatly enhanced with fault detection technology. With this technology, sudden changes to the performance of equipment trigger a notification to onsite staff so they can fix the problem before tenants notice. This also significantly reduces wear and tear on equipment, which delays expensive capital investments.
Fault detection and diagnostics have been around for a long time for properties that can afford a building management system (BMS). Now, electrical, vibration, temperature, humidity and moisture sensors can be deployed to fill the same role for a fraction of the cost. Smart buildings no longer must be built from the ground up, a no buildings left behind strategy must also include existing buildings that don’t have the budget for a robust automation system.
There are several factors to consider when evaluating fault detection technology, but applying these would be pointless if done in a vacuum. Without consideration of the greater portfolio, a narrow fault detection solution would not serve the needs of a diversified portfolio either.
Cutting Edge Office Development
This 1.5 million square foot building is in Los Angeles and was completed two years ago. It is now fully occupied with office tenants, including a prominent anchor tenant. There is a full-time engineering staff that is highly trained and intimately familiar with the building’s automation system.
Like other new development, the building has been designed to be “smart” from the ground up. There are thousands of sensors installed throughout the building that feed the state-of-the-art BMS. There is built-in fault detection and diagnostics in the BMS and the manpower needed to perform regular preventative maintenance on every critical system.
On paper, it wouldn’t seem that there would be many opportunities to improve the operations at this asset, especially with the same platform that applied to the previous multifamily property. But as everyone who works in buildings knows, what’s on paper rarely translates exactly to reality. According to the past president of ASHRAE, Gordon Holness: “analysis of many new buildings indicates that their performance significantly deteriorates in the first three years of operations (some by as much as 30%) – even those designed as high-performance buildings.”
Despite the sophistication of the system, automation does not necessarily mean optimization. To avoid this “performance drift,” data used to detect faults can also be mapped to weather data and inferred occupancy schedules to add a continuous, independent verification that the programming of the BMS is ideal.
In addition, despite the resources available, even the best run buildings rely on rules-of-thumb regarding their maintenance schedules. Unfortunately, 82% of machine failures occur at a random interval. This means that calendar-based preventative maintenance only solves for a fraction of failures. Instead of waiting to detect equipment failure, this property is a prime candidate for condition-based maintenance, which notifies operators when the performance of equipment degrades. This streamlines processes and averts a much larger share of faults compared to preventative maintenance alone.
Not all faults can be avoided. When a failure is detected, there is a small window of time where equipment degradation can be limited, and tenant comfort maintained. With increasingly complex systems and more experienced engineers retiring every year, this is getting more difficult. Like fault detection, digital twin technology is not brand new. What is new is that one comprehensive operations platform can embed fault detection and maintenance insights directly in the digital twin, enabling experienced engineers to troubleshoot issues from anywhere they happen to be.
As we said, automation does not equal optimization. While there are powerful technologies that overlay on top of BMS to identify optimizations, this alone is not sufficient to reduce maintenance and repair costs, and certainly would not apply to the multifamily property mentioned before.
Bulk Distribution Warehouse
This building isn’t located in a dense urban area like the previous two, but it is located near one. The 500,000 square foot property is a one-story bulk distribution warehouse optimized to deliver “last mile shipping.” The way this building is used is fundamentally different than the other two assets mentioned before. Tenants are large technology and retail companies that have different expectations for their space. It is much less about the comfort of the people inside and much more about the efficiencies enabled (or hindered) by the building.
The growth of E-commerce has made industrial warehouses the darlings of the commercial real estate industry. However, growth comes with increasing competition and the need to drive optimizations at the margins. These optimizations can be increasing reliability through fault detection, or it could be through tenant-facing services unlocked through extremely granular data.
In order to identify these opportunities, a massive data pool needs to be built. It’s not enough to get data on the building itself, or even the largest pieces of equipment. Data needs to be collected at the most granular level possible and stored indefinitely. It’s impossible today to predict everything that granular data will unlock. But one thing is for sure: the companies that have laid a foundation of data will be at a large competitive advantage.
How does this relate to the platform used in the other properties? It comes down to data retention. Storing huge amounts of data is challenging and expensive for technology vendors. It’s important for large, diversified portfolios to be conscious of this fact and prioritize data retention when evaluating a tech stack.
Data retention has another benefit. When new insights are discovered, such as equipment faults or specific patterns that indicate that maintenance is required, these can be retroactively applied to the data pool of the portfolio’s history (and the industry as a whole). It also enables new tools for better decision making, such as equipment-level benchmarking.
Mixed Use Office + Retail
This 600,000 square foot property is in Chicago. The ground floor and basement are occupied by a large retail tenant, but the rest of the building is office space. The building was built around 20 years ago and has an older BMS in place. There are competent operators on site, but they are very busy with their responsibilities and it’s unclear whether the property is running optimally.
Even more than the large office building in Los Angeles, there are likely scheduling and/or setpoint inefficiencies in how the BMS is programmed. There are also periodically equipment issues that negatively affect tenants and have caused at least one major to not renew their lease.
While these are critical, there is an even larger problem from the perspective of the operators. A portion of the plumbing infrastructure passes close to an outside air intake unit. When temperatures drop during the cold Chicago winters, the likelihood of a pipe freezing and then bursting is high. During events like the recent polar vortex, the building must pay highly-compensated engineers overtime rates to sleep at the property overnight.
As mentioned, a platform that provides fault detection should not be limited to the BMS. But it also shouldn’t be limited by the type of data it can utilize. In addition to electrical demand data for equipment fault detection and condition-based maintenance, platforms should be able to digest alternative sources, such as temperature and moisture sensor data. In this case, these sensors can be deployed instead of expensive engineering labor.
Thinking ahead about the “tech stack” that a portfolio of physical buildings will utilize is a foreign concept in many real estate companies. Still, in order to reap the benefits offered by technology, it’s a critical factor to consider.
There is a fine line to walk between scalability and flexibility. A platform that is generic can usually be rapidly scaled, but it will likely disappoint in terms of value created. On the other hand, a platform that is flexible can be applied to a wide range of building types, but it may be too customized and expensive to reach the critical mass necessary to move the needle.
There will never be one platform that streamlines absolutely every activity performed in real estate portfolios. But the added benefit of narrowing the tech stack of a portfolio to a few platforms is that it dramatically increases the likelihood that the small number of necessary platforms will integrate with each other.
The goal should be to find one portfolio solution for each broad department, such as construction and development, building operations, property management, leasing and asset management, amenitization, etc. This makes the cost of integrating with other technologies worth it for providers, to the enormous benefit of the real estate companies.
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