Overview of the Technology Tools Used to Analyze and Manage Commercial Real Estate Investments


Key Takeaways

Key Takeaways

  • One of the unique features of the commercial real estate business is that it is very scalable.  A large portfolio of investments can be constructed with relatively little back office support.  Part of the reason this is possible is technology.
  • There are a variety of technology tools aimed at commercial real estate professionals and their goal is to help provide accurate data, streamline operations, and automate manual tasks.  Broadly, these tools fall into three categories: Underwriting, Due Diligence, and Property Management.
  • Underwriting tools help automate the task of forecasting as property’s income and expenses and calculating key investment return metrics.

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One of the most unique features of the commercial real estate business is its ability to scale.  With the right infrastructure and access to capital, commercial property investors can build a sizable portfolio of assets with relatively little back office support.  One of the major factors that allows this to happen is the rise of technology tools specific to the real estate industry.  These tools allow investors to automate previously manual tasks, streamline operations, and get more detailed data from their properties.  

For the purposes of this article, CRE technology tools are divided into three groups, Underwriting, Due Diligence, and Property Management. 

Underwriting Tools

To underwrite a commercial property means to model its potential income and expenses over a defined holding period.  The output of the underwriting process is a series of cash flows and financial metrics that provide the investor with an indication of their potential return.  From a workflow perspective, this process is challenging because there are so many variables to consider, each of which needs to be modeled over a range of different scenarios.  Fortunately, there are a number of tools that can streamline this process:

  • Microsoft Excel / Google SheetsExcel and Sheets are two of the most popular spreadsheet programs and they are most commonly used by individual real estate investors and small firms.  They are more than capable of handling the necessary inputs to create a proforma, but using them efficiently requires some basic coding knowledge.  As the properties get larger and the transactions get more complicated, the coding knowledge required becomes more detailed, which can present a challenge for many individuals.
  • Web Based Tools:  The next level up from Excel and Google Sheets is a host of internet based modeling tools that can simplify the data input process and provide real-time outputs without the user having any coding knowledge.  These tools also tend to produce intuitive and easy to read reports and charts that can be given to investors and lenders.  Examples of these tools are The Analyst Pro and  Valuate.  Unlike Excel, which has an upfront cost or Google Sheets, which is free, these tools may require an ongoing monthly expense of $50 or more.
  • Argus:  Argus is the commercial real estate industry’s gold standard for underwriting and property analysis.  It can accommodate every conceivable input and model every possible scenario that can be imagined.  This is an enterprise level tool and comes with an enterprise level price tag.  In addition, it requires some specific training to use and can be confusing for beginners.  As a result, it is typically used by large firms who have the resources to pay for it and the human capital to operate it.    

Regardless of the tool chosen, they all need to be configured with accurate data and inputs, which can be obtained from one or more due diligence tools.

Due Diligence Tools

The purpose of due diligence is to obtain the information needed to accurately configure the property’s financial model.  Prior to the technology age, this could be an incredibly time consuming and tedious process and the information obtained was not always reliable.  Fortunately, this has changed.  Below is a summary of commonly used CRE due diligence tools:

  • Property Tax Websites:  Every county in the United States has a property tax collector.  The vast majority of them list property tax data and bills on their websites.  These are invaluable tools for estimating the amount of taxes that must be paid for a given property.
  • Government Websites:  The United States government publishes troves of valuable data about job creation, housing prices, demographics, median incomes, and net migration.  The information can be found on the websites of government agencies like the Census Bureau, Bureau of Labor Statistics, and Federal Reserve.  This data is important for supporting investment analysis assumptions.
  • Market Data:  There are a number of software tools that can provide investors with important data about things like median rents, supply and demand, absorption rates, growth, and new developments.  These tools typically require a subscription and they can be expensive.  They include CoStar, Reonomy, and CreXi.
  • Listing Aggregators:  There are multiple ways to find potential assets for purchase, but one of the best places to start is through listing aggregators like Loopnet.  They provide the capability to perform detailed searches on a target market and property type to discover potential acquisition opportunities.  From there, investors can discover the listing broker and get in touch with them to set up a meeting.
  • CRM Tools:  To track contacts with real estate agents, real estate brokers, property owners, appraisers, and other commercial real estate professionals , a “customer relationship management” or “CRM” tool is helpful.  SalesForce is one of the most popular.

The information gained from due diligence tools can be used as inputs into the financial model and as data to support the strength of a given real estate market.  If a purchase is ultimately made, investors can use an entirely different suite of tools to manage the property.

Property Management Tools

There is a lot of work that goes into managing a property.  Rent needs to be collected and credited to individual accounts, loan payments need to be made, and repairs have to be scheduled. Tracking and managing these logistics can be complicated.  Property management software tools can bring some level of automation to these tasks. Commonly used options include: Appfolio, Yardi, Buildium, and ResMan. While there are a number of different options, they all generally do the same thing.  Features include:

  • Owner and resident portal to schedule maintenance requests 
  • Accounting features to track and manage rent payments 
  • Owner reporting 
  • Mobile app to manage rental applications and tenant screening
  • Online payments 
  • CAM tracking and reconciliation 

These software solutions can be invaluable to CRE professionals trying to manage a portfolio at scale.  Their functionality enables important asset management tasks to be handled with relative ease and allows the construction of a portfolio with relatively little back office support.

Interested In Learning More?

First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms. We leverage our decades of expertise and our available liquidity to find world-class, multi-tenanted assets below intrinsic value. In doing so, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in.

If you are an Accredited Investor and would like to learn more about our investment opportunities, contact us at (800) 605-4966 or info@fnrpusa.com for more information.

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