"The Bottom of the Iceberg"

The following text is Gil Castle's final draft of the real estate column appearing in Business Geographics, July 1996

Copyright © 1996 GIS World, Inc.

The proverbial "tip of the iceberg" accounts for only about 10 percent of the iceberg's total mass. Most of my columns over the last three years have focused on the most visible 10 percent of business geographics in real estate. Since this is the annual issue of Business Geographics devoted to real estate, now is an appropriate time to dive below the surface and look at the underlying formations affecting business geographics in the real estate industry. I see four salient trends.

1. Techno-Creep

In January 1992, when I decided to devote all my time to GIS in real estate, probably less than 20 percent of the real estate professionals I encountered had even heard about GIS. Today I rarely have a "Say what?" response when I mention GIS. This trend is due not only to the unquestionable relevance of GIS to real estate activities, but also to a sea change in the industry toward being ever more data intensive and computer intensive*.

Most of the industry periodicals have articles on GIS at least once per year, the major conferences have GIS panel sessions, leading data vendors are becoming GIS compatible (more on this in a moment), and the major industry players all have GIS initiatives. As an example of the last point, last February Fannie Mae (which controls 80 percent of the secondary market in residential mortgages) sponsored a one-day workshop on "GIS in Housing and Mortgage Finance;" as another example, the National Association of Realtors®, the largest trade association in the world (more than 700,000 members), is rolling out a national multiple listing service called RIN (Realtor Information Network), which has a major GIS component.

To be sure, some segments of the industry continue to embrace business geographics faster than other segments-notably retail site selection consultants, institutional investment advisors, commercial brokers, and so on. Unquestionably, though, "Gil's Admonishment" to real estate professionals is coming true: "The question is not whether you will start using GIS, but when."

2. Data Enabled

Data is the fuel that drives the technology engine. Some types of business geographic data have been readily available for several years, such as digital files of streets and census tract boundaries, and demand-side attribute data on population, income, employment, etc. Critical supply-side data on commercial real estate market conditions and on individual properties, however, has been locked up in proprietary data bases (real estate is historically a game of information arbitrage). To the extent that vendors did offer data on selling prices, asking rents, vacancy rates, operating expenses, lease roll-over dates, etc., the costs have been high and/or the terminology has varied substantially (e.g., the definition of "leasable area" varies widely).

All that is now changing. The number if real estate data sites on the Internet is in the thousands (most being property listings by brokers). More importantly, major data vendors are emerging whose stated mission is to be the single point source for any real estate data needed for any part of the country, in a highly standardized format, easily imported into widely used software packages-spreadsheets, word processors, presentation graphics packages, and GIS. One example is the aforementioned RIN system. Another example is Teleres, a multi-million dollar joint venture by Dow Jones and AEGON (a huge Dutch multi-national), already offering more than 40 textual and numeric data bases. On the environmental side, ERIISnet offers site-specific information on toxic waste sites, spills, and other value-diminishing hazards (see Business Geographics May 1996). In short, the real estate industry is rapidly becoming data enabled.

3. The "Just Do It" Button

Most real estate professionals have neither the time nor the inclination to become GIS experts. Instead, they want a "just do it" button-that is, a prepackaged, easy to use application of GIS technology to their very specific needs.

One traditional solution to this problem has been to hire someone to be the in-house GIS expert, and tell him or her to just do it. Another approach, implemented by cutting-edge firms firms such as MetLife Realty Group, has been to retain programmers to build a customized GIS which is then distributed throughout the organization. A third, relatively recent solution is for software developers and data vendors to package a limited set of GIS capabilities with appropriate data in a special-purpose application, such as retail site selection program; for example, see product comparison articles in Business Geographics February 1996 [by Steinberg] and Business Geographics March 1996 [by Cannon]. A fourth solution, just now emerging, was the subject of my column in Business Geographics May 1996-opportunities for "Designer GIS" due to the unbundling of software functions by GIS vendors.

Ultimately, the closer these and other evolutionary approaches come to being a "shrink-wrapped" solution, the faster and more widespread will be the use of business geographics software and data in the real estate industry.

4. The Elephant in the Haystack

In round numbers the United States has $8 trillion in residential real estate and $3 trillion in commercial real estate. (By comparison, all the equities traded on the nation's stock markets have a combined valuation of about $4 trillion.)

On the residential side, the opportunities for using GIS include brokerage, mortgage underwriting, and securitization. The RIN system is the biggest and boldest effort to date to use GIS in residential brokerage. Seafirst Bank is the first to use a GIS-based automated appraisal system in mortgage underwriting; early indications are that the system will supplant 85 percent of residential appraisers. Concerning securitization, again Fannie Mae (and Freddie Mac, the other principal player in the secondary mortgage market) are already investigating the use of GIS in assembling and pricing mortgage portfolios. GIS technology is thus already well on its way to being an integral part of the absolutely huge residential real estate industry.

The commercial side is a different story. Approximately three-fourths of the capital invested in commercial real estate comes from companies that are buying or leasing space to accommodate their day to day business needs. Though real estate assets on average comprise 25 percent of a corporation's balance sheet, and though real estate expenditures are typically two-times a corporation's net earnings, surprisingly few companies have sophisticated systems for proactive asset management of their real estate. GIS can play a major role here, as I described in my column in Business Geographics January/February 1994-once corporate real estate executives realize the potential.

The bottom line for real estate, as in any industry, is that the impact of business geographics will be directly proportional to how obviously things can be done faster, cheaper, and/or better.


* See, for example, the March 1996 issue of Real Estate Forum and its E & Y Kenneth Leventhal Supplement, both of which are devoted to the "real estate technology paradigm shift."