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HomeReal Estate NewsThe Intersection of Real Estate and Digital Assets

The Intersection of Real Estate and Digital Assets

ARE THEY REALLY SO DIFFERENT?

Commercial real estate is a great example of how there can be multiple approaches to what’s essentially one business. The convergence of traditional CRE and digital real estate, or connectivity, highlights this phenomenon, which was on full display during the IDEA Showcase Keynote Presentation at the Connected Real Estate Summit in February.

Rudin Management COO and CTO John Gilbert and Digital Colony COO Jeff Ginsberg joined Fifth Gen Media Publisher and CEO Rich Berliner for a fireside chat to discuss how traditional, hard asset commercial real estate and soft assets like software have come together to change the industry forever.

“We like to say if you think you’re in the real estate business, think again because you’re in the technology business,” Gilbert said. “The reason is the data we collect has become highly valuable and important as we run our properties. We take occupancy data and correlate that against fan speed and we deliver a better, more efficient product—and we save money.”

Rudin Management executives have understood for some time now that customer experience is key to having a successful property. Customers are not concerned with chillers, fans or motors—how they feel when they walk into a building is what matters most to them.

“We’re really focused on the experience and less so on the brick, mortar, steel and glass, even though that’s very important,” Gilbert said. “But that’s invisible to our ultimate customer. So we focus on them and the experience they have.”

When Rudin embraced property technology, or proptech, which is any technology that attaches itself to a built environment or real estate, it wanted all of its data tracking apps in one central location rather than reviewing them individually. Between the water, steam and electrical consumption apps to name a few, it became laborious to look at them all.

“What we saw early on and what we did not want to have happen was to die the death of multiple dashboards,” Gilbert said. “If I have to look at a dashboard for every single application that we’ve got running our properties, I’m dead.”

Rudin solved this issue by creating NANTUM, a single integrated platform that every application can be plugged into rather than sit in silos. NANTUM allows the apps to be correlated against one other and used to create efficiencies and opportunities for savings, enhancements, and better tenant experiences. The company eventually took the NANTUM concept to other industries like banks, asset managers and hedge funds.

“I think when you sit back and look at real estate in terms of how it should be run, if your phone has an operating system, why don’t our buildings have an operating system?” Gilbert said. “Why shouldn’t this room understand that all the people that just filed in here and then automatically adjust the air conditioning based upon the increased occupancy during the last 15 minutes? It should happen, and in our buildings and others it does.”

The air conditioning example Gilbert gave highlights the importance of connectivity. Proptech would be essentially useless without connectivity driving it. That’s what makes companies like Digital Colony so valuable to the CRE industry. The company looks at the entire digital infrastructure ecosystem, which comprises fiber networks, cell phone towers, data centers and more.

“When you’re making a call or streaming a video, it is likely touching something that we own, whether it’s going over a tower that Verizon is on, going to a data center where content is stored and served up or traversing on a small cell network,” Ginsberg said. “All of the applications and software and content rides on a digital infrastructure, which is incredibly important and rooted in traditional real estate.”

“A tower is a real estate asset. You either own the land or you have a longterm lease—you have zoning, you enter into leases with tenants that happen to be really high credit and sign really long-term leases.”

“Rudin Management and Gilbert pioneered the smart building concept about 25 years ago, while Ginsberg had a company that leased rooftop space. At the time, wiring the riser was involved, but today there’s typically enough fiber and broadband capacity in metro areas so it’s possible for just about any building to be “smart.””

Ginsberg also acknowledged how important customer experience is for CRE owners—especially when it comes to connectivity. Tenants are not usually going to complain if the air conditioning isn’t working or if the lobby’s not clean; they just want to be on the building’s network and on the air.

“Each one of these businesses has different customer facing requirements and opportunities, but it is all rooted in real estate,” Ginsberg said. “I’d say the second part of this is, some of these businesses directly interact with buildings, whether they’re retail, residential, office or industrial, there is a huge digital infrastructure element to traditional real estate.”

Rudin Management and Gilbert pioneered the smart building concept about 25 years ago, while Ginsberg had a company that leased rooftop space. At the time, wiring the riser was involved, but today there’s typically enough fiber and broadband capacity in metro areas so it’s possible for just about any building to be “smart.”

“It’s really about bringing choices and diversity to your tenants and then letting the application take its natural course,” Ginsberg said. “Where we come in is just to have that infrastructure and work with landlords and help fund it, design it, and bring it here. That enables the magic.”

When it comes to wireless deployments, whether it’s CBRS, LTE, 4G or 5G, Ginsberg believes that they are important, but are ultimately the last foot delivery model. However, fiber at the core is critical.

“We keep building and overbuilding, but there does seem to be sort of an endless need for fiber capacity,” he said. “When I started in this business, we were competing on the basis of coverage maps and you would need to go to the highest point possible, whether it was on a mountaintop or a tall building and blast away. Over the years, elevation requirements have come down significantly so it’s now small cells, fiber-fed small cells that are on bus stops, side of buildings, street lamps and in buildings. That’s where the future is.”

When Rudin Management bought a telecom building in 1999, it had to figure out a way to make it different from other properties like it. The company decided to make it the linchpin between broadband wireless and broadband terrestrial. The move worked out because that building’s rooftop is the most active rooftop in the world in terms of bandwidth going through it, according to Gilbert.

“That to me is digital real estate,” Gilbert said. “It’s understanding that you can’t have one without the other. You can stack up customers, but unless you are giving them that big pipe or that big wireless feed, then there’s not much value. You need what Jeff has and you need what I have and what the Rudin family has in order to make that true value.”

The market appears to agree with Gilbert and Ginsberg when it comes to needed CRE and connectivity. Ginsberg noted that cap rates for traditional real estate have been low and there’s been more growth in computing, mobile data and wireless coverage requirements.

“The tower business is like a unicorn business,” Ginsberg said. “That is the best thing that many people have ever seen business-model wise. These companies have 65, 70 percent EBITDA (Earnings before interest, tax, depreciation and amortization) margins and it’s an efficient business. Plus, the tenant leases can be securitized, so there’s very powerful access to debt financing and securitized financing. There’s growth and you’ve got great customers who are very dynamic.”

Gilbert alluded to human anatomy when asked for his thoughts about the future in terms of how Rudin would maximize its opportunities with hard assets and connectivity.

“Buildings have always had a heart, now they have a brain in terms of NANTUM,” he said. “The final frontier is a central nervous system. I see that central nervous system, which ultimately is what Jeff is grabbing and delivering, it’s getting more and more dense. We see more sensors, more granularity within our buildings because all of that data can be collected, correlated and then ultimately used tomorrow, based on what we learned today to do a better job running that building and delivering a better product. I see that central nervous system getting very dense and granular and ultimately following us to deliver an amazing product to our customer.”

“I completely agree with that and would add to it that densification is irrefutable,” Ginsberg said. “But what’s really interesting is that it will densify and move to the edge as well. There’s a very big, powerful trend toward edge computing, improved latency, improved customer experience and that’s what we’re really focused on.

“The question is, is the edge in a smaller city, is the edge at the base of a cell phone tower somewhere? It’s really interesting and many customers that we work with think about it differently. At all of our cell phone towers, 25 years ago you had a shelter that was filled with equipment and today it’s like 80 percent empty because the equipment is so much smaller. Those are the opportunities we’re looking at. That’s my next big thing.”

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