A very accessible line of thinking about applying data in the real estate space goes something like this:
- Real estate as a domain has high transactional values
- Apply data to (even marginally) improve that transaction process
- Find a way to capture some of that value
- Success: you now operate a successful data-company
Except, the “implementation details” are particularly challenging in this domain. Four specific challenges surfaced when trying to apply and monetize data in the acquisition phase of real estate development projects.
1: Data is used in a very early phase
Data is typically used to uncover new potential sites for (re-) development. The time between initial identification, approaching the owner, and a transaction may be weeks (very optimistic), possibly months, and likely years. The perception of “added value” from the data therefore is quite weak, and that in turn decreases your ability to sell and commercialize.
2: Acquisition managers have unique acquisition processes, probably more unique than the data you have and maintain
Quality of data requires focus, while having successful acquisition channels depends on having unique access to sites, thus making use of unique data to uncover sites. There is a conflict between these approaches: developers prefer a breadth-based approach, where as data provider you are also responsible for depth (= quality).
Therefore, supplied data needs to be incredibly diverse, and more likely than not developers will ask for more esoteric and unique data than you can supply.
3: Data is not a defining factor for deals
Ultimately the most interesting metric by which to find potential sites is the willingness-to-sell of the current owner. Most types of data in this process are considered in the degree that it correlates with that metric. We have found that overall, there are no consistent indicators of willingness-to-sell. The biggest other ingredient to turn data into deals is time.
4: Real estate developers are masters at offloading risk
As the transaction sums are large, to share in the transaction requires a lot of patience and trust between you and your client.
- Developers will not pay a commission over a transaction until the transaction materialises, so be prepared to wait.
- If you manage to agree on a commission payment structure, this will be largely based on trust. The transaction will likely be executed through project-based legal entities that may already or may not yet exist. What matters here is that developers have many ways to do transactions outside of your view.
- This also makes it hard to truly scale your business, as every client requires an extensive trust-building phase.
Conclusion
That accessible line of reasoning therefore is not as evident as it might appear. The ability to find new high-value (re-)development sites - in my experience - does not easily convert into (predictable) revenue.