With market information provider MSCI having recently acquired commercial real estate information provider Real Capital Analytics as part of a ramp-up of its services to property investors and developers, particularly in APAC, Varun Malik who leads the US firm’s real estate business in Asia Pacific has seen his firm take on a new level of importance with investors and developers in the region seeking to benchmark their work against global standards.
Malik spoke with Mingtiandi ahead of the upcoming Property Innovation Forum 2021 to offer insights into expanding access to independent market data is shaking up the way Asia Pacific manages real estate investment.
What kinds of technologies are likely to emerge this year and the next for managing data and valuing non-listed assets?
I think COVID at the very basic level increased the need for data. There has been a tendency in Asia to shoot from the hip on investment decisions. We found over the last 18 months that deals are now being rooted in data.
Second is implementing and almost making climate risk and climate performance second to our investment thesis. This trend is going faster than the one I just mentioned, and I think it’s just giving birth to the fact that this exists even in the current investment landscape.
What systems are companies adopting that may help them compare their performance with market benchmarks?
I think the best way to describe it is there are multiple providers in the market. One deals with one-data flow, which is “I sell you data.” The second providers deal with two-way data flow. So we’re finding a lot of investments focused on the second because ingesting data is one aspect of things, but having service providers consult to assess their data and deliver back insights is something they’re finding a lot more useful and clients willing to pay. Specific firms and players think about it.
42 percent of respondents to Mingtiandi’s tech survey said that Asia’s real estate industry is trailing the West in terms of tech adoption. How do you see innovation in Asian real estate compared with other parts of the world, especially when it comes to handling data?
At the end of the day, trends are not limited to a certain region; they tend to gravitate. I think a large catalyst to that tends to be institutional capital. For the last 10, 15 years we have started to see more and more institutional capital pursuing Asian real estate opportunities. These investors carry with them certain standards that they have either seen, found or actually mandated for themselves in other parts of the world. Asia should be no different, because that’s essentially how these investors run their business.
I think in Asia it’s easier said than done, because the institutional capital is a much smaller subset of the entire pot, but as the market is growing we’re starting to see them pull more of their weight, which is starting to change the way people think about this. If you asked me this question pre-COVID, the response might have been different; but since COVID arrived, the change or the adoption has been a lot quicker than what I had thought, just by the sheer number of engagements that even MSCI is having.
With the dawn of COVID, what sort of change in the quantity or types of inquiries have you seen?
At MSCI we’ve seen a real increase in interest from the investment community with companies having started to put more focus on its relative performance. For far too long, given the state of the industry in Asia and to some degree given how small institutional capital was as a subset of the industry, there has not been so much focus on benchmarking and performance. Now that is changing.
That is quite a surprising trend for a market that has always delivered a double-digit ROI. What is causing that? Let’s call it “fear” to some degree. There are forces at play here. My earlier point on how small the subset of institutional capital is as compared to the overall subset also means that capital can dry up pretty quick too, and we’ve seen that in past crises in Asia. I guess the question people ask me is what’s different this time? It remains to be seen.
Business process automation (60 percent of respondents) and big data analytics (58 percent) were the two technologies chosen most often by survey respondents as the top priority for adoption within the next three years. Are real estate investors ready for big data?
It’s easier said than done, because a lot of these investors are playing catch up at this point in time. A lot of regional large players tend to manage all their data on Excel, so how do you take that jump from being someone who manages and invests using Excel and go to something highly digital without really understanding the nuts and bolts of how this is meant to operate, how this is meant to help you, and how ultimately something like this will deliver, so that’s one piece of it.
Second is truly understanding that this is an investment, not a cost. The respondents at the end of the day are responding to the thesis of something like this, but most don’t necessarily appreciate that this is an investment to the business. It’s a difficult one to answer, but definitely the will is there. The will is there, but this needs to be converted to action. Now we’re seeing early signs of that, especially markets in Australia, Singapore, Hong Kong — there’s definitely more traction.
You saw a lot of change in adoption because of COVID. If they’re thinking of this as an investment, why don’t they see the opportunity to make more money if they manage their information better?
The industry here in general — and this is not specific to Asia — is operating on information asymmetry. The way this is perceived, this being data in general, it’s perceived as something that flattens or equalises the level playing field. So there is this, where are we, where do we need to get to, and what does that entail as far as the rest of the market is concerned. So I think the hesitation lies there, because the way we are able to operate and be successful, the industry believes in what we’re doing. Otherwise we don’t have access to any data. We are only able to make sense of data if we get data from the same players we’re talking about and convert that to insights. Let’s call it a chicken-and-egg scenario that part of the community is grappling with.
Is there a disconnect between the availability of data and in harnessing these sets of data to develop quick, actionable insights? What technologies are we looking into to improve the use of big data in real estate?
It sounds like nirvana in the context of Asia for sure, but this is very institutional capital in the West. We’ve been at this effort for almost 15 years. We’ve been very serious in being the lead aggregator in everything real estate. The data is available, but there needs to be a fundamental reconstruction in how businesses are set up to access this data. Data is available on a platform, and this data can be hooked on your platform if you’re open to something as simple as an API. But if you’re running a business off an Excel sheet, you can’t do that. There needs to be a reconstruction of how businesses are structured to organise data, pull in data from external sources, use that data as a comparable to their data to construct actionable insights and then actually take those actions. It starts there. There’s only so much that a firm like us can do in telling you how to reach that threshold.
Given what you have seen this year, and the findings of the survey, what do you expect to be the biggest change in the use of technology in the real estate industry in the next three years?
Data fundamentally, just the way it is used and how it will continue to be used in investment decisions, will really change the way real estate operates now, which is a very deep fundamental change in the institutional space. The second is, I think climate change will be a very large impact that investors will sort of factor in their investments. Technology is driving a large part of that in terms of mapping the said change onto investment portfolios. I think that is going to be a fundamental change on how investments are done in general. Up to this point, ESG and all things related to ESG, this is going to be a core pillar as far as investments are concerned moving forward.