CBAI Research Newsletter, Institutional Real Estate, Media & Speaking

RESEARCH PAPER ON RISKS OF AI FOR REAL ESTATE

I recently co-authored a research paper titled New Risk-Management Considerations For The Real Estate Industry In The Era Of Artificial Intelligence for Global Studies on Economics and Finance.

We presented a blueprint for real estate investment companies for novel risk considerations due to the rise of use of Artificial Intelligence applications. New technologies (especially Artificial Intelligence) are rapidly changing how investors, tenants and managers use, invest, and finance property. These technologies are introducing revolutionary change for the industry in terms of organizational structures and a novel set of risk considerations that managers within real estate investment companies need to consider.

Key ideas:

Revenue optimization is the common AI use case

The integration of AI and Natural Language Processing (NLP) into real estate investment models enhances tools for Return on Investment (ROI) optimization. These tools provide predictive insights and uncover complex correlations in data, leading to increased revenues for brokers, investment managers, and service providers. Additionally, they contribute to significant cost reductions by streamlining workflow processes. For instance, an NLP application can track hyper-local real estate submarket data activity, identifying correlations between local market factors and property value. Equipped with NLP capabilities, the application can automatically optimize effective rent based on real-time market shifts, ensuring alignment with current market dynamics.

Real estate firms operating like technology firms

The adoption of AI in real estate is driving firms to undergo a transformative shift, leading to a hybrid approach in culture, management, and operations. Economic changes, the global pandemic, and technology adoption serve as catalysts for this overdue transformation. Modern real estate companies are now operating akin to tech firms, reshaping business models with a focus on tech-driven innovation. However, challenges arise due to the significant differences in the traditional structure and focus between real estate and tech organizations.

The need for comprehensive restructuring

Tech companies excel in diversification, expanding across functions and geographies, while real estate firms traditionally focus on specific property sectors. Tech companies quickly adapt to competition by diversifying products and targeting new markets. Real estate, with physical assets and entrenched structures, faces unique challenges in this shift. To embrace tech-driven management, real estate firms need comprehensive restructuring, cultivating virtual cultures, adjusting dynamics, and fostering agility. The absence of Chief Technology Officers (CTOs) underscores the urgency for a technology-focused approach in real estate leadership.

Adoption of new leadership styles

Real estate firms undergoing transformation must flatten hierarchies, promote teamwork, adopt location-independent work models, prioritize customer-centricity, and develop integrated executive management systems. Managers leading this change must consider the profound impact of technological innovation on team psychology. This involves setting clear goals, metrics, benchmarks, and role models to empower teams to take risks, learn, and gain confidence in executing critical projects. It is crucial to adopt new leadership, team management, and labor organization approaches that align with the evolving landscape of both technology and real estate industries.

New business risks for AI

Artificial intelligence offers numerous benefits to businesses, but it also comes with risks and challenges that organizations need to be aware of and address directly: loss of jobs, Return on Investment (ROI) uncertainty, technical challenges, dependency on AI.

Conclusion

Due to the current state of the economy, effects of the pandemic, and rapid adoption of new technologies, real estate companies are likely to radically change the way they are organized, how they innovate and manage technology risks, and how they are led by management. The paper underscores the need for real estate firms to create comprehensive restructuring plans to operate like technology firms and to emphasize the development of self-leadership and communication skills in the workforce. It is important for companies to address the array of risks associated with AI integration – loss of jobs, ROI uncertainty, technical challenges, dependency on AI – by exercising a nuanced approach, tailored to the unique needs and circumstances of each organization. The development and implementation of solutions should be a collaborative effort, drawing input from multiple stakeholders within the organization.

See full paper New Risk-Management Considerations For The Real Estate Industry In The Era Of Artificial Intelligence.

About the author:

Olga Koroleva is a founder and CEO of Capital Brain, a company that builds AI-powered products. She is also a high-altitude mountaineer who likes to climb mountains with double-digit death rates, University lecturer, and a public speaker on leadership and risk taking. Sign up to her self-leadership newsletter at https://capitalbrain.co/blog/