Insights Apr 15, 2021

Why CRE finance&brokerage is like the Taxi industry before Uber

Yulia Yanni

Hi everyone. I’m Yulia Yanni, CEO and co-founder of RealAtom. We’re a technology platform for the commercial real estate lending industry used by banks, credit unions, non-banking lending organizations to make more commercial real estate loans. 

Today on our new podcast about commercial real estate/technology, we are talking to Jeff Roberts. 

Jeff is a founder of Innovation Vista, an IT strategy consulting firm, which helps finance and commercial real estate companies make the most use of technology.

Jeff has also served as a CIO of HFF, as you all know, a large commercial real estate company that JLL recently acquired. Jeff, welcome. Thank you so much.

Jeff Roberts 

Well, I appreciate the opportunity, and it’s nice to talk.

Yulia Yanni

I am always fascinated by people from the industry who work for large companies and then started their businesses. And I would like you to talk about that transition today. I would also like us to cover today your unique view on technology that is already used or is coming to commercial real estate and commercial real estate lending. 

So the first question, if you please can talk about yourself and tell us more about what you do.

Jeff Roberts 

Absolutely. Well, thank you again. As you mentioned, I was the CIO for HFF, and JLL announced the acquisition in the summer of 2019. A year and a half ago, I decided that I helped them finish the transition and onboard our technology into the JLL capital markets group. After finishing that, I decided to start my consulting practice rather than find another role as CIO. I’ve been a CIO at five different companies, two different commercial real estate firms, and two residential mortgage firms. And I thought this had been something on my mind for a while. I’m going to give it a shot.

A lot of small and medium-sized firms are fearful of that. But there are some fantastic platforms out there to subscribe to rent the technology. And you’re spreading the cost of the innovation across all of the people who are using that. So it’s more affordable for each of them.

Yulia Yanni

You also decided to advise startups, and we were lucky to get you as an advisor to rely on.

Jeff Roberts 

Well, I feel the same. It was perfect timing for me, and just coming out of that environment, I had some perspective on how the brokerages operate.

Yulia Yanni

Great. So you spent quite a bit of your career in real estate. What drew you to it?

Jeff Roberts 

That’s a good question. I began in oil and gas as a programmer, and with ups and downs in that industry, I found an opportunity to move into finance and real estate. I quickly realized the impact that technology could have and that space was significantly more extensive and more strategic. So it’s just the nature of these industries. In some places, they’re all about physical equipment and operations and so forth. Technology can help bring some efficiency, but in finance and real estate and brokerage, in particular, it’s all about information. The value proposition of so many of these companies is understanding markets, understanding counterparties, connecting dots, and bringing people together for transactions. And so, the fit for technology to move the needle in that industry is just huge.

Yulia Yanni

You’re telling me that you work for Enron. You said yesterday.

Jeff Roberts 

I interviewed with Enron. I do live in Houston. I think everyone in Houston interviewed with them at one point, but yeah, I avoided it.

Yulia Yanni

Good for you. Can you talk about the challenges of being a CIO in a large commercial real estate organization?

Jeff Roberts 

Sure, absolutely. I think, first of all, I would say being a CIO is challenging in any organization, but there are unique challenges in commercial real estate, for sure. The first of which is the wide variety of different groups and lines of business. 

It is significantly different from what people do in property management, basically asset services and on-property functions versus brokerage for tenant representation, landlord rep, and capital markets. The difference in what those days look like, what your customers are doing, what they need from technology is enormous. At HFF specifically, that was a capital markets-focused organization. I think that the challenge is real. There is the nature of that business. It is transactional. The brokers are by their nature hunters, and so their focus is not on tools. It’s not on internal systems point and clicks interfaces, et cetera. It’s outward; it’s thinking about markets and counterparties and where to find the next deal. Some challenges come with finding the right solution that gets enough bandwidth and insights from them to understand what would help. And then you’d build it in a way where despite the wide variety of how brokers operate, you can make something that helps them.

Yulia Yanni

That’s interesting. And how is your perspective different now, when you’re running your consulting practice versus being a CIO at a large organization?

Jeff Roberts 

That’s a great question. So as a CIO, one of my biggest challenges was building excitement for change. One of the things that I always tried to bring to the role is innovation, thinking of moving the needle. So, really beyond efficiency, thinking about market share revenue, I tried to get ideas and to get people in leadership to believe that technology really could help us win more business. There were just very few firms that operate that way and have that experience. So that was always very challenging. 

What’s interesting as a consultant is that I’m still trying to make that sales pitch, but the people I’m engaging with will buy into that idea by the nature of engaging with me. They already believe, yes, it can matter. And that’s the reason that they’re doing business with me. I am very small; I and a couple of support people and subcontractors that I bring in for projects. But what’s unique is my focus on really using technology to drive the top line. So it’s in some ways, similar; in some ways, it’s a little easier because my partners already believe.

Yulia Yanni

So basically, when you manage a large organization within a larger organization, you still have to sell your ideas to the people who were running the organization. Right?

Jeff Roberts 

Right. If you want to do more than keep the lights on, you do. It’s just so in so many people’s minds that their role is to keep things running, save us from being hacked, and keep everything backed upright, and these functions and those things are important. Don’t get me wrong that is critical. But yeah, I always felt like a salesperson, internally to get them to think beyond that. And what else can we do beyond lights on?

Yulia Yanni

And especially considering the industry where people still operate very often with the status-quo, email spreadsheets, and making a lot of money, what is great. But I think it’s hard for them to see the changes coming, but you being in that environment as a CIO, you see those changes and want those people to know, but it’s hard to change that mentality.

Jeff Roberts 

It is. Yeah. It’s tough to change the mentality of someone who’s making a lot of money. That’s a great insight you had there because that success can make people very comfortable. And that is a challenge seeing what’s happened in other industries, trying to bring that, to make people aware that there were people who thought the retail industry was safe as well. Some people believed that the taxi industry was safe and a stock brokerage. You can’t count the list of sectors that disrupted. But for sure commercial real estate is one of the last to experience this, but I happen to believe it’s underway. 

I know it’s underway because I’m helping to make it happen for several of my clients.

Yulia Yanni

Are there any verticals in commercial real estate that you see, even innovating faster or others that are still lagging?

Jeff Roberts

That’s a great question. I think that property management has had more advanced systems for longer. I believe that they’ve squeezed out more efficiency and more capabilities there than capital markets and brokerage. I think there’s more to go, and there are certainly exciting things happening there with regards to building sensors and smart buildings and environmental efficiency, lots of things still advancing. But that feels like a pretty high-tech part of our space compared to brokerage, where people still rely on Rolodex and their relationships across the industry. And incoming and outgoing phone calls get a lot of deals done still.

Yulia Yanni

Do you think the pandemic time has affected that space as well? I see people using more and more virtual tools or virtual document signing. What do you see?

Jeff Roberts

I think it starts there, that’s the lower level, how do we communicate, but I see it, and it’s beginning to impact. I see it as people’s comfort level with technology and their awareness of what’s possible. I think it’s turbocharged. For many years, many of us in the IT industry has tried to get people to adopt video conferencing. A lot of us bought desktop cameras for our users and our clients, and our counterparties. And we struggled to get up to that technology. Now it’s an absolute requirement, and with so many States with quarantine rules, I think that’s helping because then when you think about, well, what else could systems do? And rather than talking about something, could I just get a report out of a system that confirms it for me? Is that a better use of my time? I think people are thinking more broadly now since the pandemic, for sure.

Yulia Yanni

Interesting. Now let’s talk about commercial real estate, finance because it is an industry within the industry. And it’s huge; I think we have like three and a half trillion in commercial loans outstanding. Of course not as large as residential, but still huge in the state. What kind of trends do you see in that space?

Jeff Roberts 

It’s very much changing, and I think that also that segment is in line with what we just talked about, first of all. So you don’t have to get on a plane when you can’t get on a plane. You can still get work done. That’s changing things. As opposed to investment sales and other capital markets functions, the finance side is enormous to your point in terms of dollars, worldwide, and everywhere you look. Still, in terms of the number of players in that market, it’s actually among the smallest, certainly smaller than tenant rep. In property management, even sales are depending on where you are on the specter. A large number of entities buy and sell commercial properties much larger than the number that will lend against commercial properties.

I think the finance side, in some ways, is slower to adopt technology because of that. It’s a little bit of a club, of a tight circle where people know each other. Relationships make the world go round, but platforms such as RealAtom are starting to get some traction out there. And the efficiency of sharing information and collaborating online the workflow, the approval, the comparison of term sheets, et cetera. And rather than on a phone call or in a meeting, be able to have that all online where people can all see the same data points simultaneously. That’s extremely powerful.

And I do see that taking hold. I think, in general, we head towards a world where more and more things will be systematized and fully automated. I think people don’t realize the self-driving car is a great example. That’s something that scared people to death, not very long ago, that you would trust a machine, and to drive a car that you’re behind at 60 miles an hour, and yet that’s happening. Commercial real estate finance is very much the same if we can standardize it, and if the data coming in can be validated and vetted and is complete, and underwriters have their models, they know what they want to lend. They know how much money they want to lend. They know how they want to spread it in terms of their risks, geographically by sector, et cetera.

If you think about that landscape, there are people right now brainstorming; how can we build an AI to say yes or no to mortgage applications? And what do the terms need to be to switch it from a yes to a no? And that will tremendously disrupt the whole dynamic. I’ve had several conversations with brokers that are a little fearful of it. Suppose you look at spaces that have undergone this. In that case, it just elevates the role of those people from paper pushers and just really transaction enabling to advisors, to counselors, which already happens at the high end of the spectrum, where you have huge transactions. There are different ways to structure it. You get that advisory kind of expertise involved because, frankly, the dollars are worth it; the difference of one basis point on a deal like that is worth having the very top expert involved. On the low end, it’s just not. There are going to be more systems that will handle more of the basics as we go forward.

Yulia Yanni

You just touched on a fascinating thing that we see in commercial real estate finance. People are afraid that technology will push them out of business. I do not believe that they are advisors/paper-pushers because I think what you just said right now, they are advisors/paper-pushers. And technology, basically from my perspective, liberates them. Right? What do you see, how to deal with this kind of fear, because I believe technology can help those people, but that fear keeps them even behind their competitors. Right?

Jeff Roberts

One of the things I talk about frequently with clients is that you don’t have to build everything yourself. A lot of small and medium-sized firms are fearful of that. But there are some fantastic platforms out there to subscribe to rent the technology. And you’re spreading the cost of the innovation across all of the people who are using that. So it’s more affordable for each of them. For the user in a fast-moving, disruptive environment, it’s also an extra benefit, an insurance policy, that you’re not going to disrupt from something coming out of the left-field because the third party built that platform if it’s successful. It has a sufficient market share. Their whole job all day, every day, is to stay competitive with everything else that’s out there.

So that’s a very affordable transaction to get the system and get the constant expert monitoring of what innovations are happening and let’s stay ahead of them or equal with them. A lot of small and medium-sized businesses should do more of their custom approach. Suppose that the customer approach is impactful enough to drive business. In that case, if they’re willing to make the financial investment to keep it at the leading edge and not fall behind their client’s expectations and run the risk of losing market share overnight, I think that’s a big step, and a big financial commitment for a lot of companies, where renting a solution solves the problem for much less.

Yulia Yanni

Let’s get away from commercial or commercial real estate for a second. You are in technology, but what technology fascinates you the most and why? 

Jeff Roberts 

I love the whole space. I have known since I was 13 years old what I wanted to do for a living. I got one of these tiny, very junior computers for Christmas when I was 13, and I was just enamored and fascinated with the idea. And I just knew they’re going to get more powerful. They’re going to do more and more and more. And I wanted to be part of that. I think the leading edge is probably AI, this idea that with the correct data and the suitable model, computers can do what was unthinkable not very long ago. And also, I should throw in there with affordable horsepower. That’s now available with the cloud.

It wasn’t unthinkable. And now we trust things to AI every day, all day when it makes life easier for us and brings the most likely choice to us at the top of the list, all over the place. And I think the impact of that we’re just scratching the surface. I think there’s been a lot of caution thrown out there. There are many risks if it’s misused or trusted too much without the right level of testing; talking about self-driving cars before that’s a great example. The testing level to get a comfort level with that is just mind-blowing but doable. I think all the small decisions that we make every day in our lives and our business will be automated.

And where we elevate what human beings do to the creative, the insightful, the things that require A-intellect, to me, is inspiring. For example, in medical technology, a safety net underneath all of us could constantly monitor early signs of any physical issue, whether it’s some chronic condition that needs treatment or just a viral infection or a cold or anything that at the earliest possible moment. It either informs us of it, or it automatically deals with that situation because of the low level of sensors and AI models that we can put in place. 

I think we’re going to protect people so much more effectively. We’re the mistakes that happen that costs lives and pain, and agony. I could talk for hours about that. I think it’s fascinating and as exciting as what’s happening now is it’s kind of like I felt when I was 13, we’re in this world at the very beginning, and there are so many more things that just all you need is the correct data and a way to decide against that data. And a willingness to say, I’m willing to put that on autopilot, and there you go. So it’s an exciting future.

Yulia Yanni

I hear what you’re saying, but at the same time, it is scary. Did you see that we do the Boston dynamic robots recently dancing?

Jeff Roberts 

I love those Boston dynamics. It’s amazing how they’ve advanced.

Yulia Yanni

But imagine, you’re in Houston, and you come to the country dancing club, and there’s a robot, ‘Would you like to dance’?

Jeff Roberts 

Yeah, it’s scary. We’re going to have to get used to things much more quickly than we are used to. Society had a long time to get used to the idea of the car and the airplane and other technologies like that. We’ve got to get used to very quickly coming to grips with a new change. So, we’ll see if we can do it as human beings.

Yulia Yanni

 Thank you. So two more questions, and we’re done. The first one, what are you currently reading?

Jeff Roberts 

I’m reading a fascinating book about the social changes that have been sweeping the country for the last several years. It’s called ‘The Madness of Crowds.’ The author, Murray, wrote a fantastic and very insightful book. Honestly, I had trouble understanding and putting a mental framework on what is happening in society. Where we headed towards with these changes that have come in recently, where, all of a sudden, you have this enormous swing of, from a small minority to a vast majority of people believe a sure thing, very strongly, everything about social justice and rights and what qualifies as marriage. And the swings are quick. We need to get used to change at a much faster pace. Social change is just like that as well. So ‘The Madness of Crowds’ is an exciting book. I recommend that. I think he does a fantastic job of just giving us a way to think about what’s happening.

Yulia Yanni

Thank you for the recommendation. I will look into it. With the last question, let’s get back to commercial real estate for a second. What would you wish commercial real estate technology leaders across all sizes of companies did differently today?

Jeff Roberts 

One mistake that I see, and I call it a mistake. I think it’s understandable, but I do see it a lot. And that is that the interaction with the business in commercial real estate is different. There is less engagement. It is harder to get time with business leadership, particularly in some commercial real estate segments that we like. We talked about brokerage, where they’re going after the next deal, and the next deal that can be challenging to get their insights and get their input. If you work at a bank, it’s not that hard to get an appointment with an executive that heads up a division to say, ‘We’d like to get some meetings scheduled to get your insights and the right people in your group to help us design some new system.’ In commercial real estate, that is incredibly hard to do.

It’s because of how they’re paid and their business’s nature, where they need to be hunting the next thing continually. And I can identify with that, actually now in the consulting practice, much more so than I used to. Coming back to the question, I think you need not give up getting that insight. I think too often, the mistake is, well, we asked for their input, and we only got two or three people to respond. So we will build this system based on that input because that’s all we receive, or IT will fill in the gaps, right. We think we know what they need. They were too busy to help us. So we’re going to design this system for them. It’s a mistake.

It’s a mistake every time I’ve ever seen it done. One of my favorite tactics to do was to bring a team to get on a plane back before the pandemic. We would order lunch for a particular office and bring in the business people. We at least invite the business people that we wanted to have and insights from, feed them. Don’t just schedule a webinar and ask them to jump on, or don’t, by all means, don’t send them an email and expect that you’re going to get profound, thoughtful answers. But if you feed people, bring them in the room, and I know that’s hard, and in COVID, the virtual equivalent of that is not as effective, but I think, do the best you can. Don’t give up on that input, and don’t build anything significant without that input because often, what we design is over-engineered.

It’s too complicated. There are too many data fields. Honestly, what moves the needle and what people need to know and consistently know at a certain point in time is usually far less than what we think as IT people because we see these vast database schemers. We think, oh, there are 500 data points about a particular commercial real estate mortgage. They know about four or five at the early stage, that’s it! And it’s all they need to know. That’s enough for them to go and find the best terms. And then they start that process of fleshing that out into a full-blown term sheet and quote. The other funny thing is that the two or three people from the business that often reply can get into Myers-Briggs personality types. But the people who give that rare input tend to be the people who are so detail-oriented, who have every little thing lined up, and that also leads to systems being over-engineered and too complicated.  

Relationships make the world go round, but platforms such as RealAtom are starting to get some traction out there. 

And people don’t think to filter what they’re getting. They’re just happy to get it. And they say, ‘Wait, three brokers gave us their thoughts on what they’d love to see!’ Those three, I promise you, if it’s out of a group of a hundred, those three are probably the three most detail-oriented in the entire company. And they care about ten times more than everybody else. So that’s a kind of a long answer to your question, but yeah, for technology leaders out there in this space, think about that a little bit, and you need to hear from the people who are in the vast 90,97%, it’s hard to get their input, but try feeding them lunch. That’s my suggestion.

Yulia Yanni

I hear your pizza always works. Thank you. That was a valuable recommendation for technology professionals, not only in commercial real estate but also across industries. And with that, thank you so much for being gone on our podcast today. Again, I’m Yulia Yanni from RealAtom. Our guest today is Jeff Roberts, founder of Innovation Vista and IT strategy consulting firm that helps finance and commercial real estate companies make the most use of technology. Jeff, thank you for being with us. Have a good day.

Jeff Roberts 

Thank you so much.

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