How Data is Transforming the Real Estate Market

If you haven’t heard of "proptech" (property technology) yet, now is the time to become familiar. Over the past decade the real estate industry has seen an explosion of startups that are disrupting the process of buying, selling, and investing in property.

These startups have stimulated an influx of venture investment, with Inc. noting that “since 2013, annual investment in U.S. proptech companies has grown at a rate five times that of investment in all U.S. businesses. In 2019, investment in U.S. proptech is on pace to exceed $10 billion.”

One driver of this growth is access to new and better data. This access is spurring an ongoing revolution across the industry—transforming the marketplaces for commercial and residential real estate alike and creating new business opportunities for large financial firms such as Citi.

OLD PROBLEMS

Traditionally, the process of collecting, compiling, and analyzing real estate data has been frustrating and time-consuming.
Much of that data is unstructured and not shared; for example, many properties are purchased via LLC to obscure the buyer’s identity. Real estate data can also be difficult to access because it is not always digital—local municipalities’ record-keeping often remains paper-based.

The data challenges in real estate can be categorized in the following ways:

1. Poor quality data: No two buildings are the same. The inventory is constantly changing. And asset quality is inherently unpredictable—it’s hard to know how long a new roof will last, or if a particular neighborhood will improve or deteriorate over time.
2. Fragmented data providers: In the commercial market, data providers are highly specialized—according to industry sources who have spoken with Citi Ventures, industry professionals generally rely on anywhere from 5-10 data providers.
3. Data inaccessibility: Good data is hard to get, and obtaining it is labor-intensive. Commercial real estate (CRE) data specialist Costar is a prime example. To provide its clients with leasing and listing information, the company deploys a team of roughly 1,800 researchers who spend their days calling property managers and asking what's going on at their properties—collecting about four million rent data points every day for apartments alone.

As a result of these challenges, finding a data edge and gaining the advantage of being a first mover on the best opportunities has been difficult for investors and home-buyers alike, whether that opportunity is a multi-million dollar development or a family’s dream home.

NEW SOLUTIONS

New technologies and data sources are allowing real estate market participants to get better information on locations and properties faster, spawning a more data-driven approach within the industry while generating new products and services.

On the commercial real estate (CRE) side, Citi Ventures portfolio company Reonomy is using machine learning and artificial intelligence to analyze millions of fragmented and disparate CRE records in all major US metropolitan areas. That allows the company to provide users with valuable property insights and intelligence—for example, helping commercial developers determine what rights they have to build luxury condos in specific areas.

In residential real estate, home buyers are now just a few clicks away from finding the data they need on crime, traffic, air quality, and other factors that go into making buying and selling decisions. Internet marketplaces such as Zillow are thriving, and the National Association of Realtors reports that in 2018 44 percent of home buyers looked for properties online first and 88 percent found websites to be the most useful source of information for home searching.

Meanwhile, new real estate investing platforms such as Fundrise, RealtyMogul, and Citi Ventures portfolio company Roofstock are leveraging this improved data access and quality to open the market to retail investors, allowing individuals to invest in spaces once reserved for institutions with specialized knowledge, connections, and scale.

NEW OPPORTUNITIES

Real estate’s increasing embrace of technology is generating new ways for firms such as Citi to grow their business, in part because the emerging ecosystem is still up for grabs. A 2019 KPMG global real estate survey found that only 25 percent of respondents have a well-established data strategy, while a third have no data strategy at all.

In the near term, Citi’s Retail Bank and ICG can leverage new data providers and market participants to identify potential customers—individuals likely to sell or refinance their homes—verify ownership, monitor changes in investors’ real estate portfolios, and expand the relationship with existing clients.

Citi itself also has access to significant amounts of real estate industry data that can be of use to investors seeking to make better investment and underwriting decisions. Partnering with proptech startups could help ICG teams package and sell this information to clients.

Data-driven tools and platforms are another area where Citi can build deeper relationships and create more value for current and future clients. Citi Ventures Studio’s City Builder by Citi, for example, allows investors and others to quickly and easily find and analyze information on US Opportunity Zones in order to invest in economically distressed areas.