Information is everywhere, and it’s becoming easier and easier to gather data, analyze it, and put it to good use when you’re buying, selling, or managing commercial real estate.
The abundance of information is mostly a good thing, but it also creates some conflict when we think about what is shared and when. Transparency is a big topic in commercial real estate circles, and it’s an important part of running a fair and open real estate business. Transparency is about accountability. It’s necessary in order to earn trust with your tenants, your fellow investors, lenders, vendors, and service professionals. Members of your community cannot trust you unless you’re transparent and fair.
Bell Properties is taking a look at how commercial real estate investors can navigate transparency and fairness in all commercial real estate transactions.
How to Embrace Transparency as a Business Model
Transparency inspires everyone to do business a little better. It makes what you do more accessible to others.
The concept of transparency is not new, and it’s not unique to the real estate industry or the commercial interests within that industry. To be more transparent is a goal across industries, and it requires the open sharing of information, data, and insights. Instead of keeping secrets, you’re sharing what you know and what you’ve learned. You’re contributing to the betterment of the entire industry.
Transparency and fairness might seem like it’s at odds in an industry as competitive as commercial real estate. But, it’s actually one of the most essential parts of establishing good relationships, and real estate is a relationship business. You need to be transparent if you want to establish good relationships with tenants, buyers, sellers, industry partners, service providers, and fellow investors.
Transparency and fairness will contribute to your tenant experience by providing the security and the context that often comes with information and analysis.
Luckily, the technology tools we have access to as commercial property managers and investors have made it easier than ever to be transparent. Bell Properties provides our investors with 24/7 on-demand access to their own asset data, for example. We’re also able to offer more regular and efficient communication. These factors drive better engagement between us and our owners and tenants. It helps us to establish and nurture good relationships.
As property managers in Los Angeles, we invest in technology because we know it helps us to be more transparent and fair. Our screening process is more objective. Our rent collection and renewal processes are automated. As we continue to learn more and more tech, the desire for transparency grows and our ability to meet that demand increases.
Gathering and Sharing Commercial Real Estate Data
Transparency is required within your asset management systems because it drives accuracy.
When your systems are transparent, as well as your data collection and your results, you’ll be more accurate and your systems overall will be more consistent and standardized. Think about your accounting system. If the information you have in your accounting system is wrong, you’re making decisions based on flawed information. But if you’re transparent about your accounting system, it’s open to anyone who might spot an error and help you get on track. That improves your own decision making capabilities and keeps you on track.
In order to improve your data, you have to expose it. Gathering and sharing data will make it more reliable.
Data silos are not fair. They inhibit productivity by making it impossible or difficult to identify the key data insights that can really drive results and help people make better, more informed decisions. Transparency exposes the hidden inaccuracies that may ultimately impact decision-making and investor relationships.
Transparency is becoming even more important in commercial real estate as our technology tools improve, especially as we get more and more comfortable with artificial intelligence (A.I.). People need transparent access to data, and all of us also need to be aware of how we can leverage A.I. to make investment decisions. A.I. can sift through advanced analytics much faster and with more accuracy than a human can. This will make the investment data that’s available more transparent and it will also make navigating the investment market more fair. Everyone will have access to the same information.
Transparency, against the backdrop of machine learning and A.I., becomes all the more imperative. To understand how these insights could impact their portfolios and drive results, investors need to understand where the insights and the analysis are coming from. The well-informed investor can take an active role in managing and growing their portfolios. They can make data-driven decisions on their own, without just taking some expert’s word for it. This is only accomplished through transparency and fair and equitable accessibility to all available data.
Transparency Drives a Fair Investment Process and Easy Due Diligence
Investing in commercial real estate requires an extensive amount of due diligence. You want to know what you’re buying and how it’s likely to perform. You expect the seller to be transparent about the property. Your lender expects you to be transparent about your finances. Everyone is doing their due diligence to ensure that the process works well for them.
It’s a necessary part of the investment process, and it’s only accomplished when everyone agrees to transparency and fairness.
When you’re buying a commercial party, you don’t want to negotiate the deal or close on the building without walking through the property and inspecting the surroundings. It’s easier than ever to buy a property sight unseen, but that doesn’t mean you should. In the interests of transparency, a seller will make the property available to you. You’ll have to inspect the property yourself and rely on the expertise of others to analyze the property or the building and decide whether you’ll be able to use it the way you want to. Will it be attractive to commercial tenants? Will you earn what you expect in rent?
Concerns may arise, and that will affect how you negotiate the price and the terms of the sale. Maybe you’re looking for a commercial property that you can use as an office building, for example. But if there’s no parking at the property you’re considering, you might back off from that potential acquisition.
This is part of your due diligence. It requires transparency from the seller. You’ll be expected to provide the same level of transparency when you’re looking for tenants and you’re trying to sell them on the idea of renting your commercial space.
Sellers are legally required to provide disclosures on a commercial’s property’s physical characteristics, such as easements, encumbrances, and other restrictions. When sellers are transparent about these things, the real estate transaction is fair. Everyone is entering into it with the proper, accurate information. It’s still a good idea for the buyer to personally review, validate, and make a decision about each of those disclosures. You don’t want to automatically assume that the seller is disclosing everything they should. You want them to. You expect them to be transparent and fair. But, your commitment to due diligence will have you trust, but verify the information that’s provided.
Transparency Helps to Avoid Litigation
When there is a lack of transparency in a commercial real estate transaction, it can lead to disputes and lawsuits between buyers, sellers, investors, brokers, and anyone else who has an interest in the transaction. This is especially true when the parties involved do not have a clear understanding of the transaction details such as the terms of the agreement, closing costs, and other fees.
It’s essential to ensure that all information about the property is provided in writing, and all parties have agreed to the terms and conditions of the transactions. Transparency and fairness will help avoid misunderstandings and limit the likelihood of litigation.
Transparency Promotes Long Term Investment Relationships
Commercial real estate transactions can be complex and challenging, but transparent and fair dealings will promote long-term relationships. This is because both parties involved in the transaction will know that they can count on each other and trust each other every time they do business together. They might seek each other out for future deals.
By treating each other fairly and being transparent in all dealings, everyone will feel confident that the transaction is completed ethically, and that all parties remain satisfied with the process.
Besides the legal and ethical reasons for emphasizing transparency and fairness in commercial real estate transactions, there are financial benefits to doing so. Investors tend to gravitate towards transparent and fair dealings. There is a greater likelihood that such transactions will result in mutual benefit and increased returns. Therefore, to boost returns over the long term, real estate investors should entrench transparency and fairness into their transactions.
Transparency and fairness are the hallmarks of ethical commercial real estate transactions. While complex transactions may be tempting to navigate without full disclosure, honesty and trustworthiness always outweigh any fleeting benefit. Maintaining ethical conduct in your dealings builds your own reputation and credibility, leading to more business growth and more significant opportunities.
Would you like to talk more about this topic, or anything else pertaining to Los Angeles commercial property management? We’d love to hear from you. Please contact us at Bell Properties Commercial Real Estate.