Over the past 15 years, technology improvements have raced ...



How Technology Will Affect The Future of Real Estate (and Real Estate Lawyers)By: Andrew L. HerzFifteen years ago I, together with Reverdy Johnson, presented to the ACREL October 2000 Meeting a program on “How Real Estate Lawyers Can Use the Internet”. We demonstrated such ideas (then deemed novel) as how to retrieve leases executed by newly public dot-com companies from the Internet; how to use the Web to find out more about other parties to transactions, their properties, other tenants and building amenities; how to view building floor plates remotely; and, finally, how to research real estate law online.Back then, Internet companies owned no tangible assets and had no tangible net worth. Now 15 years later, the survivors and their progeny are among the world’s largest companies with worldwide footprints and influence. At that time, long-term commercial leases had historically presupposed the stability and predictability of the tenant; a source of strength of the “Old Economy” company. But today, there is no stability or predictability even for major, financially strong “New Economy” companies, because their very cultures and missions applaud and revere change and disruption as guiding principles. Changes in Space Requirements. The unique space requirements of first generation Internet companies were sneered at by established corporations and professionals. Yet today, they are part of the standard space requirement checklists for even the largest companies as they wish to be perceived as “hip”, “cutting edge” and “forward thinking”. These requirements, which are also embraced by the most established architectural and design firms, include:Open Work Areas where people can interact collaboratively in comfortable settings. Employees are no longer constrained as to where they can “set up shop” as all of their data, work product and files are on their laptops (or wrists!) or available on the “cloud” all the time through wifi connectivity. Tech companies use “white boards” and write on company walls to brainstorm and problem-solve. Their need for filing cabinets is minimal, having been replaced by storage in the “cloud”. Even the concept of a desk where you placed photos of family and friends now seems largely irrelevant. In the age of Facebook everyone works everywhere and carries his or her own photo gallery on a smartphone. WeWork, a major provider of shared office space “geared toward the technology, advertising and media sectors as well as millennials”, has been a major proponent of co-working by leasing large multi-floor blocks of space and creating fully socialized office communities for individuals and small companies. These “offices” resemble a cross between noisy college study halls and trendy hotel lobbies. They have received tremendous traction, and not only among the under-30 crowd. To date WeWork has leased over 30 locations including entire office buildings and is looking to double that number within a year. Flexible Layouts with movable partitions and clusters allow the “work team” to expand or shrink as the situation changes. Egos and seniority are no longer expressed by the size of one’s office. The concept of aspiring to the “corner office” is as dated as the scenes in the television series “Mad Men”. Frequently, companies seek to graphically demonstrate that there is no one hard and fast chain of command.Roofs and Terraces are being utilized for many purposes. Roofs have become gathering places when not utilized for solar panels, satellite equipment or organic gardening. Terraces and outdoor areas can similarly be used for social and business gatherings and recreational activities (and, yes, there are firms with miniature golf putting greens or bocce courts on their roof decks) when they are not being used to house generators and supplemental HVAC systems.Amenities such as pool tables, ping pong tables, gyms and yoga studios pop up in companies founded by and populated by Millennials and Gen Y’s who have no concept of a 9:00 to 5:00 work day. Many companies (not just high end hedge funds) provide community lunches or dinners to their employees. Indicative of the lengths to which developers are willing to go, in an article in The Wall Street Journal in July, 2015, Boston Properties and Rudin Development (two of the largest office building owners in New York City) together with WeWork, announced a new project at The Brooklyn Navy Yard which will feature “such amenities as a half basketball court, a rooftop conference center and [the clincher!] bicycle valet parking”. These companies want to keep their employees on the premises for as many hours a day as possible. Companies, including large law firms, have been amenable to including “standing desks” in office renovation plans as an inducement to retaining talent and keeping that talent working longer hours. Law firms are late adopters of these concepts as they, more than virtually every other industry, remain stratified with a strong demarcation both between lawyers and non-lawyers and between partners and associates.Bicycles being brought into office buildings is a right often granted to tenants as there is a confluence between extra LEED points earned by having bicycle racks and the desire of employees both to get exercise and to reduce carbon emissions. Organized bike sharing programs such as Citi Bike in New York; Capital Bikeshare in Washington, DC and Arlington, VA; Divvy in Chicago; Hubway in Boston; CoGo in Columbus, Ohio; Bike Chattanooga in Tennessee and Bay Area Bike Share in the Bay Area, CA, all serve to encourage bike riders and bike owners to ride to work as well as offering an additional transportation option for locals and visitors.Premises Security, both building-wide and within the premises, is upgraded as it affects the feeling of safety which is a vital part of creating an “open environment,” where freedom of movement must be balanced with security. As security becomes more sophisticated using fingerprint identification and retinal scans, it becomes less subjective and, therefore, less discriminatory based upon stereotyping. In June a facial-recognition system was tested at Dulles International Airport near Washington, D.C. to speed travelers through passport control.Excluding Competitors from buildings to avoid poaching of employees is an often expressed requirement of progressive companies. The last thing a young, successful company wants to do is to invest in training neophyte workers, only to find them, once trained, lured away by competitors that frequently are founded as spin-offs.Business Continuity Systems and Plans are high on the agenda for any company that relies on computers. Today, that means every business other than blacksmiths, exterminators, massage parlors and horse carriage-drivers. The restoration of electrical power in the case of an outage cannot wait for the utility company. There must be uninterrupted power supply as well as backup sites for disasters. One major national bank created totally redundant systems for their massive trading floor after they computed the cost of the loss of power for one hour as exceeding $100 million. Beyond backup systems, we now have massive data centers whose continuous operation is critical to many rmal Use of Premises by collaborators, partners, vendors and outsource providers needs to be incorporated into leases as businesses realize that they don’t have to do it all and that they are having a more and more difficult time foreseeing their future hiring needs. Will clients and vendors share space with professional service providers? This seems unlikely for law firms but very likely for architects, business consultants and other firms.Over the past 15 years, technology improvements have raced ahead so quickly that we cannot imagine a business environment without them.Present Benefits of Advances in TechnologyBelow are some of the ways in which advances in technology improve how we and our clients conduct business today: Better assemblage of, accessibility of and analysis of data. For example, ARGUS Software recently signed a contract with CBRE that will give them, as well as over 600 other customers, an “integrated global asset management platform that supports multiple valuation standards, provides superior investment visibility and delivers powerful reporting capabilities.” Their competitor Yardi Systems claims over 20,000 clients for whom they provide “integrated property management software and investment management solutions.” Products such as Share Vault, RCM’s Virtual Deal Room?, Listing Lab, Carbon War Room, and REAL Workspaces all provide virtual data rooms to securely disseminate, organize and track underwriting materials and due diligence documents for significant real estate financing and sale transactions. Owners of portfolios of properties receive information from their property managers in the same format which allows extensive comparative use. Through online access, property owners can continuously view and download bank account activities with a few clicks of a mouse.Research about others. Learning more than you would ever want to know about your clients, your adversaries, your advisors and even your clients and colleagues has become second nature as we “Google” everyone with whom we deal. If someone doesn’t have a credible online identity, then they don’t exist. Google went public only eleven years ago. LinkedIn, which is intended for professional networking, was only founded in 2002 but by 2006 had 20 million members. This seems impressive until one learns that today it reports more than 364 million members in over 200 countries. And there is, of course, Facebook which has four times as many members as LinkedIn. All types of information are readily available through the Web, including pictures of people’s houses through Google Earth which “enables you to explore the globe with a swipe of your finger”; listings of stock ownership and directorships through ; and even genealogy trees through or . Try using to see where colleagues live and the value of their homes.Current industry news. Leaving aside online access to virtually every newspaper and news magazine in the country, daily online real estate news publications are proliferating. These range from “Real Estate Law 360,” which attempts to report on real estate transactions around the nation to “” with separate versions for New York and California and “Real Deal,” which is also a New York daily. Now in New York we also have “Pinhawk” which is an aggregator of real estate news articles published by others. We can expect more aggregators (and, better, “curators”) on a national scale. GPS (Global Positioning System) now taken for granted, but invented only in 1993, is having a profound effect on real estate development. Coupled with computer search engines, GPS devices let us find and drive to retail establishments making roadside visibility and prominent signage less necessary. We will see if the GPS tool affects choices of new retail locations by large companies. Clearly, it is an invaluable tool in making immediate delivery and fulfillment possible. Our locations are continually being tracked both by apps such as WAZE that provide driving directions (as well as alerts to roadside challenges on a real-time basis) and, more consistently, by every smartphone. As locations of consumers are monitored, retailers have taken notice. The younger generation is not too sensitive about their locations and habits being tracked and recorded while the older generation is blissfully unaware that their information is being collected at all. If one goes to his or her smartphone, checks the privacy settings and searches under “Location Services” and then digs deeper into “Frequent Locations”, all of the places, frequency and time of visits of the smartphone user are recorded and accessible. For example, I was able to see how often I went to the gym and on which days and for how long I was there. Even more exciting will be the role digital mapping services will be in enabling technology for self-driving cars as discussed later.Building construction has also been greatly aided by CAD (computer-aided design) which has made possible the construction of buildings with curves, slopes and other than right angles and a host of other unique or asymmetrical features. Each structural element can now be different from every other one as they are made with precise but differing calibrations and each piece is numbered and tracked by bar codes. It is now commonplace to see buildings which could never have been built when the architects had to draw the plans manually.Reduction of legal disbursements has occurred as we have moved toward a paperless society with most written communications travelling over the Internet. Disbursement costs for law firms have declined as photocopying is greatly reduced and messenger deliveries for the most part are unnecessary. Even billing is now often done online through e-billing (directly through the law firm or indirectly through a third party provider such as Serengeti) which large consumers of legal services claim can better help analyze and regulate legal munication among peers in the law has been fostered by online discussion groups. Hosted by bar associations, law schools and other legal groupings, practitioners can find answers to cutting edge legal issues as well as references for individual lawyers or specialized practice areas. These groups have sprung up on the national, state and local level, vastly improving communications, relationships and collegiality within the profession.The “Dark” Cloud of New TechnologyWhile we have seen how dramatically technology has improved how we conduct our daily business lives in the past dozen years or so, we have also seen its dangers and pitfalls. Predicting how it will change our lives in the future is much harder to anticipate.Invasions from Cyberspace. We will continually need better security for our technology to protect the confidentiality of ourselves and others. In a highly connected world of devices we risk having bad actors take advantage of unseen access where criminals hack networks and compromise confidential information. Fears of saboteurs taking down power grids, military installations and communication systems are not unfounded. The risks are obvious. The answers are not so obvious. “Always on.” Counterbalancing the ability to actually meet with people with whom one may be dealing when in different locations is the dilemma caused by us being constantly “in-touch” through smartphones and computers. We are answerable to the sender whenever and wherever we may be and regardless of what else we may be doing. Not only can anyone communicate with us (and know whether we have received and read their messages) but they can also attach voluminous documents which the recipient is expected to read, understand and discuss in their entirety immediately upon receipt. No longer can one take solace that there will be several days of respite when an agreement has be deposited in the mails, nor even one day of peace if left with an overnight delivery service. Our telephones can be programmed so that calls to the office are seamlessly routed to our beach houses or cellphones. Regardless, the caller still expects an immediate and intelligent response. Information Overload. We now create, store and disseminate vast quantities of information; however, discerning whether that information is factually correct or useful remains questionable. As the cost of storage has dropped over 95% in the past fifteen years, there are no real deterrents to collecting and spewing out data and information. Because much information is produced by advertisers, the task is even more daunting. For example, when one “Googles” the words “Maryland criminal statute of limitations” here are some of the results: “research.” hosted by “” and owned by Martindale. Its primary goal is to lead to a lawyer for you to hire. That same search leads to “” (part of Thomson Reuters); “,” owned by Nolo, a subsidiary of Internet Brands; “peoples-” (sponsored by The People’s Law Library of Maryland); “law.” based in Silicon Valley; and “,” a subscription service where you can find answers to your legal questions, medical questions and how to fix your carburetor from one of their 10,000 thoroughly vetted experts who chat with questioners live online. Freelancing. Young college and law school graduates 30 years ago sought the security and prestige of established companies. Not Millennials, 38% of whom are freelancers. To a tenant, this means a need for more flexibility about who can use their space, yet there is still the need to “host” these “freelance” millennials in creative workspaces, many or most of which need not be near city centers but, more importantly, need to be near public transit stops or major highways, again highlighting the priorities of flexibility and mobility. OpenTable for Lawyers. Hiring of lawyers online is already here. Much as “Open Table” does for restaurants and “ZocDoc” for finding doctors and dentists, “Avvo” does for attorneys. Lawyers get rated on Avvo which advertises itself as “Changing how people get legal help.” Even if you have never heard of Avvo, it claims that “97% of U.S. lawyers are rated by Avvo.” I know I am, even though I never asked to be, and never consented to be listed. Among their offerings are a “15 minute call with a top-reviewed Avvo lawyer for just $39.” On ZocDoc, they operate on the basis of “open architecture” so that you can see the hours during a specific day when the doctor has openings for patients. All of this only happens after the doctor accepts your insurance and has received high ratings from prior patients. Can lawyers be far behind? Lack of personal interaction. One of the negatives of the advance of technology is the lack of meaningful interpersonal interactions through our physical presence. While videoconferencing used to be an expensive proposition, it is now built into many telephone systems and is so cheap that friends and family can “Skype” or “Face-Time” each other anywhere in the world without giving any thought to cost. Transactions frequently close based solely on the exchange by emails of marked documents until agreement is reached, culminating in a “closing” where electronically executed documents are exchanged between parties who, having never met, then wire transfer funds. As lawyers, we bemoan the lack of interaction of professionals in a transaction while at the same time law firms fear the environment they create when their attorneys do little more than research and write on computer screens. Will law firms regain their sense of comraderie? It’s possible, but difficult. This doesn’t just pertain to how lawyers relate to each other but also to brokers, architects, landlords, developers, tenants and government officials as well. Perhaps everyone.Disappearance of title insurance. We have evolved from a profession where a significant portion of a real estate lawyer’s time was expended searching real estate titles to modern day professionals who rely on title insurance companies to do it for us. With electronic recording and remotely searchable records, we may be moving toward reducing or eliminating the role of the title insurance companies altogether. Online access to recorded documents is a reality, the only remaining issue is how real estate practitioners will use that to change how they utilize or restructure the role of title insurance. How Technology Will Change What Our Clients Do. As we look to the future, our guesswork is indeed limitless. The iPad was introduced to the world on January?27, 2010 by Steve Jobs. In the ensuing 14 months, Apple had sold over 15 million units. Today it is ubiquitous. What will be the “Next Big Thing”? Hard to know, but it probably will not be a true real estate product; more likely something that lets us do what we do with real estate better, quicker, cheaper and in a more organized fashion, creating hordes of data along the way. The Workplace. As the work styles, employment and hours become more flexible, so too will the workplace in ways that we have discussed above. Because young people expect to change jobs more frequently, we can expect them to be less connected to their physical space while at the same time expecting it to be both technologically advanced and environmentally sensitive. Temporary space use in the lodging and technology sectors is fostered by such innovations as AirBnb and the growth of incubators, many sponsored by universities. Our local zoning ordinances and other laws are outmoded but presumably they will catch up in due course.Fulfillment. With the growing emphasis on speed and delivery, we can expect even greater changes in product fulfillment as advances continue with both storage technologies and locations. Highly automated warehouses are created as fully integrated facilities. A partial shutdown (whether or not caused by casualty) renders the entire facility useless. Packages are tracked at every step with bar codes. The use of drones and, eventually, driverless vehicles will reduce the human involvement and labor costs in the delivery process (at least until the drones stage a work stoppage).Collaboration between Owners, Design Professionals and Builders. Advancing significantly beyond CAD, as discussed above, by taking advantage of the reduced cost of data storage, increased network speed and greater band width, all members of a design/build team can now work collaboratively and remotely utilizing Building Information Modeling (BIM) to ensure greater control over client objectives, construction feasibility and cost, delivery time and product quality. Now software companies such as Bentley Systems Incorporated and Autodesk with their REVIT products can support the entire planning/construction/ development team by creating a three dimensional model, including both the geometric and non-geometric design and construction information, to demonstrate the relationship between the components and the views. Any change to a design element would automatically transfer (or propagate) to all other elements to keep the model consistent. For example, moving a wall would automatically update the neighboring floors, walls and ceilings, correct all affected dimensions and redraw section views so that all elements would be coordinated. Existing facilities can be laser scanned to instantly produce perfectly dimensioned 3D models of a photographic quality which can be used as the background for architects and engineers. Contractors can be involved in the process early in a "design-assist" role to value manage the design to save time and money. Using BIM, tasks can be shared effectively, information can easily be shared throughout the building process, data redundancy can be eliminated and miscommunication can be avoided. While presently being used primarily for complex higher end projects due to its cost, its benefits exceed any additional costs and, as with most technologies , its cost is decreasing. Many organizations mandate the use of BIM as a means to implement all capital projects and manage them upon completion.New Construction Methods. Technology will be making radically new construction techniques possible utilizing 3D printed buildings. On June 30, 2015 plans were revealed in Dubai for “the world’s first fully functional 3D printed building”. While only 2,000 square feet in size, it will be printed layer-by-layer using a 20 foot tall 3D printer. It will only take a few weeks to assemble. All of the interior furniture will also use 3D printing technology. It is estimated that labor costs will be reduced by 50 to 80 percent and between 30 to 60 percent of construction waste will be eliminated. Can it be long until buildings composed of similar modules pop up throughout the world? The “Internet of Things” (IoT) which allows sensory devices to connect to each other, is rapidly finding applications in construction. Kinetic, a year-old Manhattan startup, sells wearable devices which can alert companies when construction workers are likely to engage in dangerous physical activities by providing “actionable insights to reduce the risk of injury”. Shift to Service. There has been a dramatic shift in employment from goods providers to service providers which has been accompanied by changing residential patterns reflecting a dramatic increase in urban dwellers. Service providers have increased over the past 75 years from 61% of the working population to 82% while urban residents have increased by more than 60% over the last century to constitute 81% of our nation’s population. This shift has occurred despite the elimination of many service positions such as bank tellers, highway toll collectors and supermarket checkout clerks. Even with domestic manufacturing increasing, we can expect these trends to continue since automation will further reduce the number of workers needed for manufacturing.Retail transitions. While online retailers will continue to thrive, they will not replace the brick and mortar store presence. We may well see an increase in partnerships between those rivals as online stores seek easier methods of fulfillment and better ways to expedite returns. Online and in-store firms will seek to be integrated and as seamless as Microsoft and Apple are out to prove. Others will rapidly follow in their footsteps. And retailers that depend on their customers’ “touch and feel” experience may find a great niche for themselves as everything else moves online. Through the use of avatars, retailers can now let online customers try on clothes remotely “on a customized 3D avatar of yourself”. Through photographs and submitted measurements you can create a “virtual closet” with items from different sellers in different colors but all in your size. Data analytics (how we analyze “big data”) can pinpoint customers’ buying and browsing patterns, from what stores they shop in to which shopping streets they frequent most often.Controlling our environment. Machines will control our environments, both commercial and residential, through network-centric systems which will remotely relay both information and controls. Building energy management systems (BEMS) will provide efficient solutions through building automation and information technology. The point at which a facility can truly be characterized as a “smart building” is when there is complete integration of automation and control technologies affecting all energy consuming and producing equipment for the property. The transformation of a facility into a smart building requires integrating control and automation systems over a variety of building equipment controlled by cloud-based energy management solutions. The rate of adoption is dramatically increasing, resulting in increasing numbers of organizations housed in smart buildings with advanced building control technology. Some sophisticated building owners are able to track the number of occupants in their building (and, indeed, on individual floors) at any given time. Consequently, they can adjust their HVAC output when, for example, half of the tenants have left the building during lunch hours. As a result, their energy costs are significantly reduced. Beyond resource sustainability, there is growing interest in the potential for buildings to affect the health and well-being of occupants and the productivity of organizations.Drones and Intrusion. The intrusion into our lives both with our consent and without it will continue to increase through satellite photography and the use of drones not only to make photographic records, but also to deliver goods to any requested location. At London’s Gatwick Airport beacons (known as “iBeacons”) identify travelers by their smartphones and point out food and shopping as the traveler passes by shops. To avoid being invaded, the travelers’ only option is to turn off their Bluetooth connections. While their promoters think that delivering “personalized mobile content” can drive engagement, boost loyalty and increase sales, others view it as far too intrusive.Self-driving Vehicles May Change the Entire Equation. While much fuss has been made lately about the use of drones to deliver goods, survey and photograph properties and perform tasks such as measuring radioactivity where humans cannot go, their overall effect upon real estate will in all likelihood be relatively modest. Not so, perhaps, will be the potentially monumental effect of driverless cars. Development of autonomous vehicles is being pursued not only by Toyota Motor Company and General Motors, but by Google and in facilities in Japan, Sweden and China. Once self-driving vehicles become a reality, they may totally reshape the office landscape as commuting becomes less burdensome, (a more likely occurrence if fossil fuels remain relatively cheap, solar energy continues to be harnessed to power electric vehicles and office buildings provide charging stations for hybrid or all-electric vehicles). Key to winning the self-driving vehicles battle is ownership or the right to use digital mapping services as evidenced by the recently announced purchase by Audi, Daimler and BMW of “Nokia Here”, Nokia’s digital mapping service, for a price of $2.7 billion. As one industry executive said, “We will only be able to have self-driving vehicles on the highway in 2020 if we have highly accurate maps”. The information about the road conditions and traffic must be infallible and in real time. Think of the possibilities: commuter cars would function as offices since no one has to watch the road or drive, making the length of the commute less important; parking lots would be unnecessary because after the passenger has disembarked, the car could drive itself home or to an out of the way storage area until summoned for the return trip home; and, equally importantly, through use of sophisticated apps, larger driverless vehicles could serve as a modified form of mass transportation (if you find someone to hook up with via an app, why not someone to ride into work with?). In addition to transporting people, driverless vehicles would pick up the garbage, deliver the mail (if there still is snail mail) and drive carpools. If the vehicles are driverless, why does there need to be anyone in the vehicle if it is not transporting people?Signage. In the past decade, the whole notion of display signage has undergone and continues to undergo dramatic changes. Advertising, whether on billboards, inside building elevators, on building exteriors or the sides of buses, can display images for minutes or less and can change with the ease and speed of television commercials. While not long ago there was a feeling that display advertising would be completely replaced by internet advertising, this has not happened. Technology has made very different display concepts and pricing structures possible. Creative signage and building identification are substantially enhanced by electronic marketing. Not only is advertising more targeted but also “static advertisements” such as pylon signs, billboards and interior wall signage can now change instantaneously and react to the motions of people passing by (see, Xbox interactive advertisements). Even office building elevators and taxis in large metropolitan areas feature small television screens that seek the audience’s attention with sound-bites such as the latest weather, stock market indices, pop culture survey results and breaking news, or a combination of two or more of the above. Synthetic Leasing Products. Since we have been speculating about what changes technology may bring, why not go far out on a limb and propose the creation of a “synthetic leasing product”, a commodity where real estate owners and tenants can trade future rental rights to match their needs and availabilities on a square footage basis, much like corn, cotton or pork belly futures? Large national users can lock their rental rates well in advance of their needs and landlords can hedge their risk by locking in the rentals they will receive. With so much more data and so much transparency, shouldn’t this be possible? And great minds using great technology should be able to figure out how to shift around tenant improvements to accommodate changing uses and users, without shipping everything to the landfill every time there is a change in occupancy. Where will all of this take us? Will the pressure for faster turnaround created by technological advances affect a lawyer’s ability to properly consider all of the relevant issues in complex transactions? Will advances in technology even make physical offices for law firms unnecessary? It is hard to know or hazard a guess, but it will certainly be different and real estate lawyers will have to be nimble. ................
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