The Complete Guide to
Commercial Real Estate Data Analytics

The Investment & Acquisitions stage of a complex real estate project requires capturing lots of information. The success of a project relies on the accuracy and quality of this data, but the chance for error can also be high. 

Commercial real estate developers have long invested countless hours into researching the most important market indicators and economic factors for site selection, conducting financial analysis in an effort to understand budget restraints and projected returns, selecting the best vendors for their projects, and securing enough investment well before the shovel hits any ground. On complex development projects, this used to entail months of tedious, administrative burdens for teams. 

Data and analytics software simplifies the process. In the investment and acquisitions stage, technology allows for seamless management of complex transactional data, easy access to key market insights, and more - allowing for more accurate and up-to-date decision-making or reporting early on.

The right data analytics platform helps teams increase returns, ensure a higher probability of project success, and tighten up development schedules by ensuring historical vendor data is cleanly organized and centrally accessible, past project data can be referred to when needed, and proactive insights keep you thinking ten steps ahead from the start. The benefits of each feature add up, often leading to significant cost and time savings in the long run.

Data analytics helps to eliminate the potential for human error, and make gleaning useful insights much easier than before. No more working out of siloed, convoluted spreadsheets or basing key project decisions off of gut instincts.

With this valuable tech, teams can focus on higher order decision-making, and take advantage of industry best-practices and up-to-date market data to feel confident in their site selection, vendor relationships, and benchmark creation.

Why use data analytics for investment & acquisitions?

• Capture and record all transactional data in real-time without importing or exporting documents from different systems
• Understand the past and present value of current properties and forecast potential future returns
• Effortlessly compare vendors to decide who can best supply you quickly and affordably
• Keep all transactional data organized and accurate throughout the year, no more sifting through unreliable paper trails

Market Data 

Those who are best armed with market data are best positioned to succeed. The proper utilization of market data consists of determining value by comparing a property to other properties of similar size and condition in the same area. If two similar properties are $500,000 each, then your property would be estimated at $500,000.

This form of real estate data plays a part in almost any situation throughout the early stages of your project, including:

• Whether to buy or sell a property
• How much to buy or sell a property
• Whether a property could be redeveloped
• What type of return to expect
• Whether it’s worth investing in certain building amenities

Let’s look at our same real-world example from above. A developer has a plot of land earmarked for a new office building. The organization must first get an equity investor, and then they need to line up a lender. A lender looks at the market and sees that rents for similar commercial spaces are $5 per square foot, but the developer needs to get $7 per square foot in order for the deal to work.

The lender sees this as a major red flag, and it is a signal that the deal must be tweaked in order for the project to move forward.

Let’s not forget about real estate demand growth. It’s not all so cut and dry; market conditions matter. You wouldn’t develop a region with no demand! This is one of the fundamental KPIs that you need to think about before starting a project.

Demand growth is notoriously difficult to forecast, but certainly not impossible. It can be estimated by using mortgage application numbers, population trends, and construction permit data.

Cost Estimations

Chances are pretty good you don’t have a blanket check for developing your new project. Before your construction team ever breaks ground, you need a pretty good idea as to how much each stage of the project is going to cost. The last thing you want to do is run out of funding halfway through.

Cost estimations include metrics like cash flow projections and anticipated costs. These are important to gaining access to the funds you need throughout the development project.

Imagine a teenager goes to their parent and asks for $100. What is the first thing the parent will say? They will ask what this money is for before determining whether or not to give it. The parent wants a cost estimate regarding what this money will be going to and whether it truly costs $100 dollars or not. The bank, mortgage company, or any other financial lender acts in just the same way! Without data-driven and realistic cost projections, you’ll have a hard time getting the money you need to make any of it possible.

The key here is that the cost estimates must be as accurate as possible, meaning based on analytics and not guesses. Ensuring
you are utilizing your historical cost and performance data is the best way to make accurate cost projections based on data. Storing your cost data in separate spreadsheets will make it hard to aggregate and make assumptions in a timely manner, but modern real estate development software has empowered development teams to ensure every decision is backed by data.

You can also put deals together faster by starting projects with pertinent information instead of from scratch.

Never make the same mistake twice. With historical data at hand, your team is able to mitigate risk by knowing which vendors are reliable and low-risk. This is an incredibly helpful way to keep your project within budget and completed on time.

Preserving institutional knowledge is a fantastic way to deliver your current and future projects with more efficiency and accuracy. For your development team, institutional knowledge can include things like:

• Cost data from past projects

• Vendor rates from past projects

• Experience negotiating change orders

• Operational workflows that proved successful

But, how do you operationalize this data? The key is to aggregate and store your historical vendor data in a way that your entire team has easy access to the information and can quickly make decisions based on what the data tells them.

Instead of keeping pertinent information siloed in spreadsheets, consider using real estate development software to keep it easily accessible to empower your team to make strategic vendor decisions quickly and efficiently.

If your project team submits a large volume of bids, housing this in one database will be extremely valuable in letting your team members monitor bid status, deadlines, and milestone dates. While you may have managed this in the past across multiple spreadsheets, this is absolutely not the best way to handle, manage, and store this incredibly valuable information.

Proper real estate development software helps you centralize vendor communication and management, issue RFPs quickly, find new vendors to work with, easily compare bids, and more. Without the vendor management capabilities that make this holistic vision possible, your current system is leaving gaps.

Real-Time Cost Data

Project management in the construction phase is complex. Yet, it’s important to have a pulse on costs at any given time. This includes both the hard cost data and soft cost data. Effective utilization of this data ensures a more favorable outcome.

As your project progresses, both types of construction costs become more of a factor. What you’re looking for is data that provides an accounting team with a clear vision of the financial implications.

Resources, logistics, and productivity are major aspects of this type of data. Having insights into resources enables your real estate development team to know what materials, equipment, and labor are necessary to complete a job. Having this data readily available in real-time, like a budget line trending high, helps project managers make adjustments quickly.

This process usually involves multiple departments, including accounting, and inevitably leads to delayed information, difficulty tracking, and vendors being both over and underpaid. You’re making your job much harder for yourself if this is still how you’re working.

Modern tools allow you to track and organize vendor communications to help with visibility surrounding contractor management data. By embracing today’s most-helpful technology, successful real estate teams are able to dramatically increase visibility into a project or portfolio. They have fast, real-time access to all project data in order to always understand the status of a project and make critical, informed decisions.

As well, this also gives development teams the ability to quickly share project details in real-time with management teams, partners, clients, investors, and other key stakeholders. Accounting teams don't want to also act as project managers. Ensuring data is easily flowing between teams helps accountants focus on their core job duties.

Industry Best Practices With Data

It’s easy to compromise on industry best practices as your project progresses. Maybe there’s a small compromise here and there in order to move the project forward faster, or because the best practice doesn’t feel needed at the time. But those little compromises add up to larger issues down the road. If you want to ensure the project remains on track it’s
important to follow industry best practices every step of the way, no matter how inconvenient it may seem.

Compiling and storing best practices, and baking them into your current workflows is the best way to ensure every action your team takes is up to industry standards. In turn, you’ll be well positioned to complete projects on time and under budget.

Examples of how to store and track your project against industry best practices include:

• Reporting templates that share pertinent data with stakeholders
• Cost-cutting development strategies that your project is actively checked against
• Checks to ensure decisions are data-backed vs. gut-driven

Return on Investment

Now that you’re well into the construction phase, it’s time to think about your return on investment (ROI). ROI is a widely used financial metric for measuring the probability of gaining additional funds from the initial investment made. It is a ratio that compares the gain or loss from an investment relative to its cost.

Your investors made an investment in your construction project and they want to know how well their investment has performed. By keeping all of your cost data readily available, you can produce ROI numbers quickly and make adjustments as needed.

The importance of commercial real estate data cannot be overstated. Having a single source of data is important to a project’s success, from the earliest stages of securing financing to finishing construction and handing it off to a property management team.

Tracking your team’s financial and performance data takes more than the commitment to do so. In fact, the process often goes off the rails when a team attempts to track too many different indicators using manual processes, spreadsheets, and force-fitted technology. This is because you’ll end up with more data than you can successfully analyze when the data is spread between multiple spreadsheets, stored away with different employees that have keystroke errors, resulting in decisions made based on a lack of or misguided information.

Clearly, these metrics are much easier to calculate if your team has the right software in place. Northspyre is real estate development software that was specifically designed to help track, analyze and make actionable decisions based on commercial real estate data from pre-development all the way through project completion.

Running a multi-million dollar real estate project in static spreadsheets often exposes your project to unnecessary risk, delays, and budget overruns. Knowing that, why would a savvy real estate developer manage a large project in a tool that is inflexible and error-prone?