How Technology Will Affect The Future of Real Estate (and Real Estate Lawyers)
By: Andrew L. Herz
Fifteen years ago I, together with Reverdy Johnson, presented to the ACREL October 2000 Meeting a program on “How Real Estate Lawyers Can Use the Internet”. We demonstrated such ideas (then deemed novel) as how to retrieve leases executed by newly public dot-com companies from the Internet; how to use the Web to find out more about other parties to transactions, their properties, other tenants and building amenities; how to view building floor plates remotely; and, finally, how to research real estate law online.
Back then, Internet companies owned no tangible assets and had no tangible net worth. Now 15 years later, the survivors and their progeny are among the world’s largest companies with worldwide footprints and influence.
At that time, long-term commercial leases had historically presupposed the stability and predictability of the tenant; a source of strength of the “Old Economy” company. But today, there is no stability or predictability even for major, financially strong “New Economy” companies, because their very cultures and missions applaud and revere change and disruption as guiding principles.
A. Changes in Space Requirements.
The unique space requirements of first generation Internet companies were sneered at by established corporations and professionals. Yet today, they are part of the standard space requirement checklists for even the largest companies as they wish to be perceived as “hip”, “cutting edge” and “forward thinking”. These requirements, which are also embraced by the most established architectural and design firms, include:
1) Open Work Areas where people can interact collaboratively in comfortable settings. Employees are no longer constrained as to where they can “set up shop” as all of their data, work product and files are on their laptops (or wrists!) or available on the “cloud” all the time through wifi connectivity. Tech companies use “white boards” and write on company walls to brainstorm and problem-solve. Their need for filing cabinets is minimal, having been replaced by storage in the “cloud”. Even the concept of a desk where you placed photos of family and friends now seems largely irrelevant. In the age of Facebook everyone works everywhere and carries his or her own photo gallery on a smartphone. WeWork, a major provider of shared office space “geared toward the technology, advertising and media sectors as well as millennials”, has been a major proponent of co-working by leasing large multi-floor blocks of space and creating fully socialized office communities for individuals and small companies. These “offices” resemble a cross between noisy college study halls and trendy hotel lobbies. They have received tremendous traction, and not only among the under-30 crowd. To date WeWork has leased over 30 locations including entire office buildings and is looking to double that number within a year.
2) Flexible Layouts with movable partitions and clusters allow the “work team” to expand or shrink as the situation changes. Egos and seniority are no longer expressed by the size of one’s office. The concept of aspiring to the “corner office” is as dated as the scenes in the television series “Mad Men”. Frequently, companies seek to graphically demonstrate that there is no one hard and fast chain of command.
3) Roofs and Terraces are being utilized for many purposes. Roofs have become gathering places when not utilized for solar panels, satellite equipment or organic gardening. Terraces and outdoor areas can similarly be used for social and business gatherings and recreational activities (and, yes, there are firms with miniature golf putting greens or bocce courts on their roof decks) when they are not being used to house generators and supplemental HVAC systems.
4) Amenities such as pool tables, ping pong tables, gyms and yoga studios pop up in companies founded by and populated by Millennials and Gen Y’s who have no concept of a 9:00 to 5:00 work day. Many companies (not just high end hedge funds) provide community lunches or dinners to their employees. Indicative of the lengths to which developers are willing to go, in an article in The Wall Street Journal in July, 2015, Boston Properties and Rudin Development (two of the largest office building owners in New York City) together with WeWork, announced a new project at The Brooklyn Navy Yard which will feature “such amenities as a half basketball court, a rooftop conference center and [the clincher!] bicycle valet parking”. These companies want to keep their employees on the premises for as many hours a day as possible. Companies, including large law firms, have been amenable to including “standing desks” in office renovation plans as an inducement to retaining talent and keeping that talent working longer hours. Law firms are late adopters of these concepts as they, more than virtually every other industry, remain stratified with a strong demarcation both between lawyers and non-lawyers and between partners and associates.
5) Bicycles being brought into office buildings is a right often granted to tenants as there is a confluence between extra LEED points earned by having bicycle racks and the desire of employees both to get exercise and to reduce carbon emissions. Organized bike sharing programs such as Citi Bike in New York; Capital Bikeshare in Washington, DC and Arlington, VA; Divvy in Chicago; Hubway in Boston; CoGo in Columbus, Ohio; Bike Chattanooga in Tennessee and Bay Area Bike Share in the Bay Area, CA, all serve to encourage bike riders and bike owners to ride to work as well as offering an additional transportation option for locals and visitors.
6) Premises Security, both building-wide and within the premises, is upgraded as it affects the feeling of safety which is a vital part of creating an “open environment,” where freedom of movement must be balanced with security. As security becomes more sophisticated using fingerprint identification and retinal scans, it becomes less subjective and, therefore, less discriminatory based upon stereotyping. In June a facial-recognition system was tested at Dulles International Airport near Washington, D.C. to speed travelers through passport control.
7) Excluding Competitors from buildings to avoid poaching of employees is an often expressed requirement of progressive companies. The last thing a young, successful company wants to do is to invest in training neophyte workers, only to find them, once trained, lured away by competitors that frequently are founded as spin-offs.
8) Business Continuity Systems and Plans are high on the agenda for any company that relies on computers. Today, that means every business other than blacksmiths, exterminators, massage parlors and horse carriage-drivers. The restoration of electrical power in the case of an outage cannot wait for the utility company. There must be uninterrupted power supply as well as backup sites for disasters. One major national bank created totally redundant systems for their massive trading floor after they computed the cost of the loss of power for one hour as exceeding $100 million. Beyond backup systems, we now have massive data centers whose continuous operation is critical to many businesses.
9) Informal Use of Premises by collaborators, partners, vendors and outsource providers needs to be incorporated into leases as businesses realize that they don’t have to do it all and that they are having a more and more difficult time foreseeing their future hiring needs. Will clients and vendors share space with professional service providers? This seems unlikely for law firms but very likely for architects, business consultants and other firms.
Over the past 15 years, technology improvements have raced ahead so quickly that we cannot imagine a business environment without them.
B. Present Benefits of Advances in Technology
Below are some of the ways in which advances in technology improve how we and our clients conduct business today:
1) Better assemblage of, accessibility of and analysis of data. For example, ARGUS Software recently signed a contract with CBRE that will give them, as well as over 600 other customers, an “integrated global asset management platform that supports multiple valuation standards, provides superior investment visibility and delivers powerful reporting capabilities.” Their competitor Yardi Systems claims over 20,000 clients for whom they provide “integrated property management software and investment management solutions.” Products such as Share Vault, RCM’s Virtual Deal Room™, Listing Lab, Carbon War Room, and REAL Workspaces all provide virtual data rooms to securely disseminate, organize and track underwriting materials and due diligence documents for significant real estate financing and sale transactions. Owners of portfolios of properties receive information from their property managers in the same format which allows extensive comparative use. Through online access, property owners can continuously view and download bank account activities with a few clicks of a mouse.
2) Research about others. Learning more than you would ever want to know about your clients, your adversaries, your advisors and even your clients and colleagues has become second nature as we “Google” everyone with whom we deal. If someone doesn’t have a credible online identity, then they don’t exist. Google went public only eleven years ago. LinkedIn, which is intended for professional networking, was only founded in 2002 but by 2006 had 20 million members. This seems impressive until one learns that today it reports more than 364 million members in over 200 countries. And there is, of course, Facebook which has four times as many members as LinkedIn. All types of information are readily available through the Web, including pictures of people’s houses through Google Earth which “enables you to explore the globe with a swipe of your finger”; listings of stock ownership and directorships through Hoovers.com; and even genealogy trees through Ancestry.com or Genealogy.com. Try using Zillow.com to see where colleagues live and the value of their homes.
3) Current industry news. Leaving aside online access to virtually every newspaper and news magazine in the country, daily online real estate news publications are proliferating. These range from “Real Estate Law 360,” which attempts to report on real estate transactions around the nation to “GlobeSt.com” with separate versions for New York and California and “Real Deal,” which is also a New York daily. Now in New York we also have “Pinhawk” which is an aggregator of real estate news articles published by others. We can expect more aggregators (and, better, “curators”) on a national scale.
4) GPS (Global Positioning System) now taken for granted, but invented only in 1993, is having a profound effect on real estate development. Coupled with computer search engines, GPS devices let us find and drive to retail establishments making roadside visibility and prominent signage less necessary. We will see if the GPS tool affects choices of new retail locations by large companies. Clearly, it is an invaluable tool in making immediate delivery and fulfillment possible. Our locations are continually being tracked both by apps such as WAZE that provide driving directions (as well as alerts to roadside challenges on a real-time basis) and, more consistently, by every smartphone. As locations of consumers are monitored, retailers have taken notice. The younger generation is not too sensitive about their locations and habits being tracked and recorded while the older generation is blissfully unaware that their information is being collected at all. If one goes to his or her smartphone, checks the privacy settings and searches under “Location Services” and then digs deeper into “Frequent Locations”, all of the places, frequency and time of visits of the smartphone user are recorded and accessible. For example, I was able to see how often I went to the gym and on which days and for how long I was there. Even more exciting will be the role digital mapping services will be in enabling technology for self-driving cars as discussed later.
5) Building construction has also been greatly aided by CAD (computer-aided design) which has made possible the construction of buildings with curves, slopes and other than right angles and a host of other unique or asymmetrical features. Each structural element can now be different from every other one as they are made with precise but differing calibrations and each piece is numbered and tracked by bar codes. It is now commonplace to see buildings which could never have been built when the architects had to draw the plans manually.
6) Reduction of legal disbursements has occurred as we have moved toward a paperless society with most written communications travelling over the Internet. Disbursement costs for law firms have declined as photocopying is greatly reduced and messenger deliveries for the most part are unnecessary. Even billing is now often done online through e-billing (directly through the law firm or indirectly through a third party provider such as Serengeti) which large consumers of legal services claim can better help analyze and regulate legal fees.
7) Communication among peers in the law has been fostered by online discussion groups. Hosted by bar associations, law schools and other legal groupings, practitioners can find answers to cutting edge legal issues as well as references for individual lawyers or specialized practice areas. These groups have sprung up on the national, state and local level, vastly improving communications, relationships and collegiality within the profession.
C. The “Dark” Cloud of New Technology