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While it might sound a bit reductive, the essential skill of real estate development can often be boiled down to one word: decisions.
A project’s developer might have more than 200 vendors to communicate with regarding pricing, timing, materials and a slew of other factors, juggling spreadsheets and details that could throw a project off its timeline and budget if this information isn’t easy to source and reference when making project decisions.
Keeping track of this multitude is the first step on the road to success for any developer. With the evolution of modern technology — specifically, artificial intelligence (AI) — developers are finding that the drudgery of tracking and inputting thousands of essential details is going the way of the rotary phone.
The adoption of AI by the commercial real estate (CRE) industry was greatly accelerated by the uncertainty caused by the COVID-19 pandemic, as commercial real estate stakeholders embraced AI’s ability to bring solutions into a clearer view.
To understand the full potential of AI, experts in the tech industry estimate that in time, AI will automate 80 percent of all physical work, 70 percent of data processing, and 64 percent of data collection tasks.
Translating this to CRE-specific functions, AI can help create and improve a slew of crucial processes. It can help you reduce overall project spending, add more visibility to project cost tracking, and reduce the time-to-information gap needed to make fast, informed decisions, and to improve the outcomes at every stage of the development timeline. At a time when inflation, increased interest rates and recessionary fears are driving costs skyward, using automation and machine learning to increase access to critical information and eliminate administrative burdens can help offset expenses.
As it happens, AI emerged at a critical time for the commercial real estate industry. According to a 2021 survey of more than 500 developers and construction project owners conducted by International Data Corporation, 78 percent were over budget and an average of 70 days late compared to their initial deadline estimates. In an age of higher interest rates on construction loans, being a few months delayed can add hundreds of thousands of dollars in additional interest debt servicing costs.
The study also acknowledged “the importance of data centralization” in noting that “better on-budget and on-schedule performance often corresponded with embracing integrated technology.”
The advantages of AI are plentiful for developers. AI can integrate historical project and vendor data to produce accurate and up-to-the-minute assessments of many aspects of a project, from budget projections to true vendor value.
AI also allows this data to be continually updated without any human input, as every new invoice, contract and transaction can be automatically integrated with existing data.
By way of example, Northspyre, a cloud-based intelligence platform for developers, analyzes all elements of real estate development, automates administrative tasks, eliminates data entry, and intuitively generates key financial reports on complex projects, thereby ensuring more predictable, accurate outcomes. Northspyre eliminates 80 percent of administrative tasks. Additionally, it gives project leaders a fuller view of the information needed to make decisions while removing bottlenecks in the decision-making process. This has led to reducing cost overruns in the development process by anywhere from 22 to 66 percent.
The company puts AI to work for developers by syncing with established email-based workflows to extract data from documents such as invoices, change orders and proposals. The technology then sorts the data, making it easily searchable and reportable. The result is fewer errors, and time saved.
Peter Chavkin is a managing member of Biddle Real Estate Ventures, a Northspyre customer. Chavkin views Northspyre’s AI capabilities as invaluable for successfully completing projects on time and on budget.
“Leveraging Northspyre’s AI equips Biddle with proactive project insights, which allows us to be agile in our decision-making,” said Chavkin. “The ability to quickly pivot based on real-time data and forecasts has been invaluable in today’s climate, when our industry has been hard hit by soaring materials costs. Previously, when a vendor alerted our project teams about a pending change order, it often took over a month for the change order to be issued and reach our executive decision-makers. In other words, we were making project-level management decisions without a complete understanding of true cost exposure in our projects — which is unfortunately standard operating procedure for most development companies. With Northspyre, those potential cost exposures get captured into the system immediately, and the entire team has access to that data.”
According to the U.S. Bureau of Labor Statistics, construction material costs rose by nearly 20 percent in 2021, the highest single-year increase on record. JLL forecasted developers would spend 6 percent more on specific projects than the year prior, with costs projected to increase another 6 percent in 2022.
It’s possible now for developers to rely on AI to help mitigate these increases at virtually every stage of a project.
At the budgeting stage, AI processes all financial and scheduling information, eliminating low-value tasks and providing critical insights into budgetary considerations that drive proactive decision-making while mitigating risk.
Proactive decision-making isn’t something most developers have the luxury of doing, given that project data is often stored across email and excel sheets and even within filing cabinets. AI tracks each budget line of your project and calculates complex projections, and will notify you if one is trending high. Unlike when you review monthly financials and discover a budget overrun, skilled teams have the ability to make adjustments in real time and help prevent the overrun from ever happening.
When developers use AI on each of their projects, the proactive insights provided add up to major cost savings. It’s only human nature to stick to the comforts of doing things the way they’ve always been done. It’s also human nature to see businesses rise and fall as a result of that comfort. For developers who don’t want to see their firm become the commercial real estate equivalent of Blockbuster or Kodak, the time to reflect on the age of your current process is now.
View more articles on development technology here.
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Why Artificial Intelligence Has Become Invaluable for Developers – Commercial Observer
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