Data Standards

Stephen Spooner, Non-Executive Director, IREDD, Aug 2020

 

If you are in the insurance industry, even as a real estate specialist, you could be forgiven for missing the significance of the Open Standards Consortium for Real Estate (OSCRE) having made their data model available for free use.

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Well done if you got past the first paragraph, it shows admirable fortitude. “Why is it of interest to me?”  I hear you say. “Isn’t this just stuff for those involved in a technology niche serving property managers or possibly the arcane sub-niche of property valuation?” Good points, but no. Please stay with me.

 

Commercial real estate data is particularly opaque for two reasons:

 

1. It is complex because it is multi-layered due to the plethora of interested parties and sources;

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2. As a result of that complexity it is hard to create a unified picture of the data constellation that relates to each asset. Many businesses just don’t bother to collect or manage data beyond their immediate needs.

 

The massive, lucrative and economically critical real estate industry has traditionally handled this with a surprisingly consistent approach. It employs lawyers to take the risk that it may have misunderstood what it has bought. This is particularly prevalent when it comes to transactions.

 

The ancient due diligence ritual acted out when assets are traded, leased or financed requires a great deal of time to gather and minutely examine the epistles, scrolls, indentures, deeds and assorted instruments that together define the rights to be conferred on the purchaser, tenant or lender. To be fair most of these documents are now available in electronic form, although much of it is no better than taking a photograph. This is a soul-destroying task when carried out, even if it just once. I know this from personal experience but it gets worse. The exact exercise is often repeated on multiple occasions for the same asset because for each “event” at least one party has to perform the ritual, again.

 

Why?

Essentially the desire to limit the risk that that value will be adversely affected by a previously unknown legal or physical impediment. There is no trust between parties operating, fundamentally, on a philosophy of caveat emptor. The parties have agreed terms for a contract on the basis of a set of facts, many of which are only assumed at the moment of that agreement. The party that instigates (and funds) the ritual is rarely interested in the artefacts themselves, in fact it is normally only concerned to know if there is any aspect if the findings that might trigger a loss. This is evidenced by the frequency of occasions on which the lawyer is asked to report on “exceptions” only. A reminder: this is the ritual which has probably been enacted before, possibly quite recently and to a higher standard.

 

We have a situation where data is extracted from text or graphics, analysed and dumped, again and again. Little or no effort is made to preserve or categorise this information, let alone give it structure.

 

Why?

There are several reasons. Thank goodness, because to do this with no, or even few, reasons would be crazy right? I submit that these are the reasons:

 

1. There is no benefit to those who are paying for the work because they only have an interest in that single transaction and there insufficient data to be relevant to other portfolio assets.

2. There is no benefit to the lawyer because the chances of being asked to perform the same exercise on the same asset again are small. Furthermore, the lawyer’s income is often generated by charging for hours spent reviewing and reporting, even if the outcome is simply a report that says, “it’s fine.”

3. The lawyer has a potential liability if the data is incorrectly translated from its textual source and re-used for other purposes. That liability would be reflected either in increased professional indemnity insurance premiums or worse, cover becoming unavailable

4. There is no point unless the data can be profitably be used in a structured form.

 

Make no mistake, the cost of repeating these exercises is very large but that is not the most expensive aspect. Time is the enemy of all transactions and these rituals are truly profligate in its use. Weeks or even months pass while the dance is dutifully performed. All anybody wanted was protection from the unforeseen, but the only defence was a microscope rather than a satellite. This is like getting a doctor to pay your salary if you have to take sick leave, without access to any research data or patient information other, than her own observations.

 

We are now in an age where vast databases are linked to give insight into risks, trends and causation but many aspects of real estate are (and will remain) invisible without the structure that data standards bring. Some examples of data models that are now available and open for use without incurring use charges:

 

• Internationally, OSCRE members have supported and facilitated the creation of thousands of carefully considered definitions of real estate data points for over 20 years. The value of time and expertise invested in these “pigeon holes” in which to park and find information is incalculable but unquestionably vast.

• In the UK, a meticulously designed system for identifying “parcels” of real property, in three dimensions, has come through a long and troubled gestation to provide an anchor for an array of physical, social and economic information that is looking for relevance. 

• The Royal Institution of Chartered Surveyors is providing the means to trade in data that has been assembled to the meet their global professional standards.  These cover valuation, measurement and construction, with other areas to follow.

 

These are just the most recent examples of an expanding infrastructure which will provide opportunities to:

• challenge outdated practices;

• employ technologies like machine reading;

• bring real liquidity to real estate;

• reduce transaction costs;

• renew and adapt the built environment to meet challenges of climate change or pandemics;

• provide valuable information to other aspects of local, national and global economies.

 

The insurance industry understands and trades in risk by assessing issues and analysing history; a process which cannot be undertaken without the light that data brings. Open data standards provide the  light that reveals opportunities to assume risk and in doing so reduce waste while saving time, to the benefit of buyer and seller. This is a free resource and won’t be ignored by everyone, do you want your share of the bounty it can bring?