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    November 29, 2022

    How Historical Data Can Help Your Real Estate Firm Overcome an Economic Downturn

    Traditionally, the real estate market has a  four-phase cycle: recovery, expansion, hyper-supply, and recession. After enjoying a boom in 2021, the U.S. economy’s mounting uncertainty has recently pushed the sector into the low end of the cycle.  Skyrocketing interest rates and  declining lending activity have caused deals to fall apart and made launching new projects more difficult. But because of the sector’s  strong fundamentals, market experts believe conditions will improve next year, meaning the recovery phase is on the horizon.

    Forward-thinking development firms can adapt to the challenges of the current marketplace and its resurgence by leveraging historical data. Traditionally, the best-performing real estate deals are initially assembled and planned during market downcycles. Maintaining comprehensive records of past projects gives you access to insights that bolster organizational resilience and set the stage for future success.  

    Here’s a look at the organizational impact of an economic downturn, the benefits of harnessing  institutional knowledge to get ahead of your competitors at the bottom of the market cycle, and the easiest way to create a historical database.  

    Risks Facing Real Estate Development Firms in an Economic Downturn

    Even though real estate follows an established cycle, many development firms struggle with the sector’s volatility because they aren’t prepared. Economic disruption can negatively impact companies that don’t record insights they uncovered on past projects. The risks a market downturn poses for your organization include:

    • Losing team members with crucial institutional knowledge. During recessions, companies shrink their headcounts to make their operations more cost-effective. But losing staffers with institutional knowledge can be a severe problem for your firm. Staffers can make many preventable mistakes without experience in how the firm has historically approached budgeting, scheduling, and procurement.  
    • Being unable to access and leverage historical data. After losing key personnel, companies often discover their companywide knowledge is inaccessible because it’s stored haphazardly in inconsistent spreadsheets across multiple files and folders. Your team can only benefit from lessons learned or quickly call up important documents if important information is stored in a centralized, searchable datastore. 
    • An inability to execute new deals quickly. If poor data management processes constrain your workflows, your decision-making process moves like molasses. That organizational lethargy can be costly when your team is trying to put together new deals and pencil scenarios because outdated methodologies and tools won’t constrain the top performers in your market.
    • Failing to make your firm appealing to potential JV partners. In a challenging economic environment, you must show investors that you've been successful or have the capabilities to run successful projects. Differentiating your firm is critical to winning strong financial backing in a competitive market. Demonstrating that you are a data-empowered development firm and not a file-cabinet developer is important for joint venture partners. Show them that you are using modern technologies to ensure you make the best decisions based on your historical data and track record. If not, your competition will… and you'll lose. 
    • Getting outpaced by the competition. Real estate is a very competitive business driven by hungry firms that look for ways to beat the market. In downturns, when the land basis is low, the best real estate developers see an opportunity to assemble development sites for the next bull market by iterating through scenarios quickly to figure out the highest and best use before getting development sites under contract. You must tap all your resources to put your firm ahead of the pack, like collecting insights from your historical data and leveraging automation to evaluate scenarios for new project pursuits faster than the competition.   

    The Money Your Development Firm is Leaving on the Table

    Since its inception, your development firm has collected a wealth of real estate project delivery information. Those myriad data points can help your firm make smarter project decisions and bolster returns while reducing overhead. Your records contain important insights on:

    • Project Scope Costs. After delivering a project, your firm will have a treasure trove of documents related to scopes of work, from costs for a project architect to a surveyor or a general contractor. With this granular information, you can better estimate your project actuals and draft more precise budgets for future projects.
    • Vendor Bids. You’ll collect bids from several service providers outlining their labor and materials costs during vendor procurement. Saving this information will help you understand industry wide pricing trends and anticipate potential exposures.
    • Vendor Performance. We conducted a  survey of product managers that revealed the leading cause of cost overruns and scheduling delays is vendor change orders. You can prevent underperformers from hurting your projects by tracking your service providers’ performance – including bid size, change order frequency, and bids vs. actual costs.
    • Contingency Utilization Patterns. Your historical data will show you your contingency utilization trends. By identifying those patterns, you can make more informed budgeting decisions.  
    • Thousands of Key Records. Maintaining a fully indexed repository of your most essential project documents – lien waivers, certificates of liability insurance, contracts, and proposals – lets you call up that information whenever you want. That capability will ensure your organization won’t have any legal issues related to improper record keeping. 

    How Historical Data Helps Development Firms Win More Deals and Improve Deliveries

    Real estate development firms can cultivate companywide data as a resource that can promote the success of your projects throughout their lifecycles.

    In the pursuit and planning phase, you can utilize a cloud-based platform to automatically create project budget scenarios and explore the highest and best use for a potential development site in seconds, not days or weeks. You can also leverage your historical data to extrapolate line items faster and more accurately. By harnessing your firm's proprietary information, you can impress potential financial partners with your robust preparation and speed. Earning the  confidence of your stakeholders is crucial to operating successfully during a recession.

    Historical data lets you compare current vendor bids with past proposals during predevelopment. That process will help you weed out service providers that submit lower-than-average proposals but turn in excess change orders to make up the difference. Similarly, your historical database can also map spending curves and allow you to see how they contrast with your trends historically. With that perspective, you can engage with your capital partners as a data-empowered developer, not an old-fashioned filing cabinet cowboy.

    Finally, companywide knowledge will enable you to negotiate change orders more successfully during construction by letting you review past vendor benchmarking. You can also give your project leads access to a historical database that reveals when and how past projects went off the rails. With that resource at their figure tips, your teams can proactively spot potential exposures and avoid repeating past mistakes.

    Historical data can also be a powerful component in ramping new project leads and junior staffers. There's no need to put team members through years of trial and error on your dime when you have data that can help guide their advancement.

    The Best Way to Organize and Leverage Historical Project Data

    Real estate development firms need to harness every potential advantage in a down market to stay afloat. Collating your historical project data is time-consuming and tedious. It would be a mistake to task high-value team members with data entry work. And under the current economic conditions, it isn't a good idea to increase your headcount.

    However, modern solutions can organize and index your historical data into a fully searchable cloud-based database. Thanks to their automated functionality, these artificial intelligence-powered platforms can gather salient details from up to 10 years’ worth of projects. Once implementation is complete, you’ll see that studying the past is the best way to prepare for the future.

    Are you ready to speed up your decision-making process, attract new financial partners, and increase your project returns? The best developers often lay the seeds for success at the bottom of market cycles. Will you be ready this time? Or will you miss the biggest opportunity for the next decade’s bull market? 

    If you are, Northspyre's historical data enrichment is the solution you need. Our seasoned real estate professionals can operationalize past bids, contracts, invoices, and other transaction data into a searchable digital library in a matter of days, regardless of how the information is stored today. 

    Once established,  you can harness the internal reference material to make better decisions and seize opportunities during planning, predevelopment, and construction. With that tool in your arsenal, you'll lower project risks, bolster returns, and beat the competition. 

    Contact us today to get started on your firm’s historical data enrichment.

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