“Data — primarily
The Quest for a
rent rolls and
tells the story
of a building’s
potential.” Elliot Vermes is the founder of redIQ, a platform for capturing,
processing and analyzing operating data for multifamily-
property transactions. Reach Vermes at firstname.lastname@example.org.
Common Digital Language
True data standardization is the holy grail of commercial real estate
By Elliot Vermes
Much of the appeal of investing in commercial real estate is that it is a tangible asset. For many lenders, buyers and commercial mortgage
brokers assessing multifamily properties, however,
what is even more important than the bricks and mortar (or glass and steel) is the underlying data about
This data — primarily rent rolls and operating statements — tells the story of a building’s financial health
and investment potential. Unfortunately, for those
looking to “read” this story quickly and accurately,
manageable operating data is not always easily accessible. Often, it gets passed around in a dizzying array
of formats, the result of the disparate methods used by
many commercial real estate professionals to record
and store valuable property information.
Decades ago, the data was captured on paper.
Today, information is frequently exchanged between
deal parties in the electronic equivalent of paper. In
order to reliably analyze the fundamentals of a multi-family property, for example, and compare it to other
investment opportunities, deal participants have to
manually extract the data from those files and convert
it into their own Excel templates to be analyzed.
Because of the wide range of formats in which this
data is compiled, an analyst looking to assist with the
underwriting of four multifamily properties may have
to sort through rent rolls from multiple distinct systems. As a result of this burden, at least in part, there is
notably less institutional ownership in the multifamily
space than in other real estate asset classes, such as
the office sector, despite the significant value of many
How do lenders, mortgage brokers and other analysts
achieve this consistency of data in a single cohesive
format to make informed underwriting decisions?
It’s accomplished through hours and hours of manual data entry, or grunt work. It’s a chokepoint on the
number of properties a given lender can evaluate.
Seeking a workaround, lenders, brokers and acquisition
teams frequently outsource manual data transcription to
companies that specialize in this line of work. These
companies, some based overseas, have finite capacity
Turnaround times often stretch into days, depending
on your place in line, as these businesses operate on a
first-come, first-served basis. For an originator trying to
create a term sheet for a time-sensitive deal, a 72-hour
wait period can have very significant — and costly —
The good news is that there is a way to avert the data
chokepoint. Many other industries have successfully
adopted standard formats for accessing valuable data,
which benefits everyone. People analyzing equity and
bond securities, for example, can simply get the data
they need from a Bloomberg terminal.
Similarly, consumer lenders can access a prospective
borrower’s FICO credit score to get an instant view of
their creditworthiness. The universal benefits of this
level of industrywide standardization have not escaped
the major players in the commercial real estate space.
They, too, recognize that they would benefit from a
Attempts over the years to create a standardized format for multifamily data have stalled, however. Fifteen
years ago, major commercial real estate organizations
and investors backed efforts to create solutions for the
real estate space’s data woes. These groups attempted
to unify the industry around a common XML standard,
but the effort lacked unanimous support and ultimately
failed to gain enough traction to create a true standard.
Automatic data capture tackles the problem from a different angle. Instead of trying to change the data-collection
practices of an entire industry, the technology extracts
the data from any PDF or Excel property-management
report. It then validates the data, processes it and converts it into an instantly usable format. Property owners
are free to carry on with their existing data-collection
habits, and the technology does the significant
legwork of standardizing rent rolls that were compiled
in different formats.
The digital nature of the extracted information
also makes it easier for lenders, mortgage brokers
and analysts to convert it into graphs, charts and other
visual representations that make spotting trends and
anomalies easier for the human mind than gazing at
column after column of numbers. Speed is another
benefit of having data in a universally accepted, digitized
format. Borrowers often make loan decisions within
short time frames. Automated data capture gives
lenders time savings measured in days. Lenders that
can turn around a term sheet promptly can increase
their chances of winning that borrower’s business.
Today, some 40 percent of multifamily loans are
being backed by government-sponsored enterprises
(GSEs) like Fannie Mae and Freddie Mac. Especially in
this extremely commoditized environment for loan
origination, it can be challenging for lenders to distinguish themselves. Speed is one way for lenders to
Data that is standardized also would provide other
benefits to originators. Lenders, for example, are able
to offer more attractive loan terms on properties that
qualify as affordable based on the average median
income of where the property is located. A tool that
automatically assesses this would be of great benefit
to the lending industry.
n n n
The biblical story of the Tower of Babel highlights the
obstacles faced by market participants when they are
unable to communicate with one another. This lesson
can be applied equally to the world of real estate investment. The sooner all market participants start
speaking the same data language, the better it will
be for everyone in the world of multifamily finance.
Across-the-board standardization of multifamily data
brings efficiency to underwriting and helps all parties
make more informed investment decisions.
Advances in data-capture technology already have
begun to improve the data-analysis process for many
investors, mortgage brokers and lenders. As these
technologies are enhanced, we will see the commercial
real estate industry finally achieve the holy grail of having
a standard that helps to streamline and improve property analysis and decisionmaking. n