Artificial intelligence (AI) is becoming an increasingly important tool in the world of commercial real estate. ChatGPT is a language model developed by OpenAI, designed to generate human-like responses to natural language prompts. As a large language model trained by OpenAI, ChatGPT is at the forefront of this technology, with the potential to revolutionize the way investors and other stakeholders in the industry conduct business. While it was initially developed for conversational AI applications like chatbots, it has a wide range of potential applications, including in the field of commercial real estate. Now, let’s explore how ChatGPT could change commercial real estate by incorporating AI-powered tools that can help investors make more informed decisions. AI-powered Content Tools ChatGPT could provide investors with AI-powered content tools that can keep them up to date with the latest trends and market news. These tools could analyze news sources and social media to give investors real-time updates about commercial real estate market trends. With this information, investors could make well-informed decisions on investing in commercial properties. AI-powered SMS With the use of SMS tools powered by AI, ChatGPT could help investors stay informed about any changes related to their investments. For example, if there’s a delay in the construction of a commercial property, ChatGPT could send an SMS to inform the investor. AI-powered Video and Image Analysis Video and image analysis AI tools could help investors get a deeper insight into a commercial property without physically visiting it. ChatGPT could have access to an extensive database of 3D images and videos, allowing investors to get a better understanding of the property’s physical layout. ChattyPDF ChattyPDF is another AI-powered tool that can allow investors to quickly analyze PDF documents related to commercial properties. All the investor needs to do is upload the document to ChatGPT, and the bot can analyze it and highlight critical information like rental income, maintenance costs, occupancy rates, and more. AI-powered Leasing Tools Lastly, ChatGPT could offer leasing tools for commercial real estate investors. With AI-powered leasing tools, investors could see the occupancy rates of different properties and analyze if they’re a good investment or not. The potential benefits of these AI tools are significant. By using ChatGPT to automate many of the tedious and time-consuming tasks associated with commercial real estate, investors and other stakeholders can save time, reduce costs, and improve overall efficiency. Additionally, the use of AI can lead to more accurate and data-driven decision-making, as well as more personalized and effective communications with clients. However, it’s important to note that the use of AI in commercial real estate is still in its early stages, and there are challenges and limitations to consider. For example, there are concerns about the accuracy and bias of AI-generated content, and there is a risk that reliance on AI could lead to a loss of human expertise and intuition. The Current State of Commercial Real Estate: Commercial real estate is a massive industry, encompassing everything from office buildings and retail spaces to industrial parks and warehouses. According to a report by Deloitte, the global commercial real estate market is expected to grow from $14.4 trillion in 2018 to $21.3 trillion by 2025. Despite this growth, the commercial real estate industry is facing a number of challenges. For example, commercial property owners and managers are struggling to keep up with changing tenant expectations, as more and more companies demand flexible, customizable spaces. Additionally, there is a growing concern around sustainability and the environmental impact of commercial buildings. How ChatGPT Could Change Commercial Real Estate: ChatGPT has the potential to revolutionize the commercial real estate industry in a number of ways. Here are a few examples: Personalized Tenant Experiences: One of the biggest challenges facing commercial property owners and managers is providing tenants with the customized experiences they expect. ChatGPT could be used to create virtual assistants that provide tenants with personalized recommendations for everything from office layout to environmental controls. For example, a tenant could ask the virtual assistant for recommendations on how to configure their workspace to maximize productivity. The assistant could use data on the tenant’s work habits and preferences to generate personalized recommendations. Energy Efficiency and Sustainability: As sustainability becomes an increasingly important issue for tenants and property owners alike, ChatGPT could be used to help reduce the energy consumption of commercial buildings. For example, a virtual assistant could be created to monitor energy usage in a building and provide suggestions for reducing waste. The assistant could analyze data on everything from HVAC usage to lighting controls and provide recommendations for more efficient energy usage. This could help commercial property owners reduce their environmental footprint while also saving money on energy costs. Market Analysis and Forecasting: ChatGPT could also be used to help commercial real estate investors and brokers make more informed decisions. By analyzing data from a wide range of sources, a virtual assistant could provide insights on market trends and forecasts. For example, an investor could ask the virtual assistant for recommendations on which types of commercial properties are likely to see the most growth in the coming years. The assistant could provide data-driven insights on everything from market demand to demographic shifts. Enhanced Customer Service: ChatGPT could also be used to provide better customer service to tenants and prospective tenants. For example, a virtual assistant could be used to answer common questions about a property or provide information on available units. The assistant could be programmed to answer questions about everything from parking to security to lease terms. This could help tenants and prospective tenants get the information they need quickly and efficiently, improving the overall customer experience. Challenges and Limitations: While ChatGPT has the potential to transform the commercial real estate industry, there are also some challenges and limitations to consider. Here are a few examples: Data Availability: ChatGPT relies on large amounts of data to generate accurate responses. In the case of commercial real estate, much of this data is proprietary and … Read more
Recently, the U.S. labor department data suggested that the annual inflation rate in the US accelerated to 9.1% in June of 2022, the highest since November 1981. Inflation is a volatile variable when it comes to managing your portfolio. The effects of inflation can devastate your assets, as we have seen in the wake of a downturned economy, war, political unrest, a disturbance in resource availability, or a chilling response to a surging global pandemic. Inflation means that your money doesn’t go as far as it used to. This is true whether you like it or not, and while nobody likes losing money, some people always seem to profit from inflation. What do they know that we don’t know? Multifamily real estate can be an excellent hedge against inflation. To understand why it’s essential to know how inflation works and how it affects the value of money. And when you know those things, you may discover that multifamily real estate can help you protect yourself from inflation’s adverse effects—and even profit from it. Before you begin to understand how residential real estate appraisals differ from commercial multifamily appraisals, it’s important to understand the different approaches these two types of properties take in arriving at their values. Commercial vs. Residential Appraisals Commercial real estate, unlike residential, is appraised using the income method. The more income property brings in, the more it is worth. The commercial real estate valuation formula is Value = Net Operating Income / Capitalization Rate. Net Operating Income (NOI) equals all revenue from the property (all rents, fees, and other income), minus all reasonably necessary operating expenses. Capitalization Rate (Cap rate) indicates the rate of return that is expected to be generated on a real estate investment property. Cap rates are expressed as percentages and vary from market to market. Within each market, cap rates have a historical range. For example, if a property had $300,000 in NOI and the cap rate in that market was 5%, you’d expect it to be valued at around $10 million ($300,000 / 5% = $6 million). Have You Heard About C.A.P.T? Among the key concepts, you should be familiar with are cash flow, appreciation, principal paydown, and tax benefits. Cash flow is the current and ongoing payments to the investor from rents. It is also referred to as yield. In addition to yield, there is equity growth from the appreciation of the property and paying down the mortgage each month. This equity component is realized upon liquidation of an apartment building—we’ll look at an example below to see why this makes apartment investments so attractive. Multifamily real estate has a long track record of beating inflation. Over the last 43 years, multifamily has beaten the inflation rate 37 times. In comparison, the S&P 500 has only beaten inflation 29 times. How can multifamily provide these more stable and consistent inflation-busting returns? Let me run you through three different scenarios: one in which rent growth exceeds CPI, another in which rent growth equals CPI, and a third in which rent growth lags behind CPI. Our hypothetical apartment investment looks like this: 100 – unit property $10 million valuation $1 million in gross operating income (GOI) $500,000 in operating expenses $500,000 net operating income (NOI) 5% cap rate (steady) 5% inflation rate (CPI) 7% rent growth (case #1) 5% rent growth (case #2) 3% rent growth (case #3) Case #1 – High Inflation / Higher Rent Growth When inflation rises, apartment rents tend to rise even more quickly. Since multifamily properties have short lease contracts—typically no longer than one year—they are nimble enough to respond to inflationary pressures and raise their rents in response. This is a real benefit for apartment investors that is not available to other segments of the commercial real estate space. Typically office, retail, and industrial properties utilize longer-term contracts making it difficult for them to respond to inflation. As a result, the only way for them to achieve higher rent growth than CPI is through the re-leasing property at higher rates than those specified in their leases. In this case, we are assuming a 7% rent growth and a 5% inflation rate. GOI – $1 million x 7% rent growth = $1,070,000 Expense growth – $500,000 x 5% inflation = $525,000 NOI – $1,070,000 – $525,000 = $545,000 NOI = $545,000 Our NOI increased by $45,000, so it is clear that our net distributable cash flow (yield) to the investors increased. Now let’s use that NOI number to see how much our equity grew. Value = NOI / Cap rate $545,000 / 5% = $10,900,000 Value = $10,900,000 So, in this case, our yield increased by $45,000 (from $500,000 to $545,000), and the value of our property increased by $900,000 (from $10 million to $10.9 million). We are not losing money to inflation; both values are increasing equally. Obviously, this is an ideal situation for the investor. But what happens if rent growth does not exceed the rate of inflation? What if they both go up equally? Case #2 When High Rent Growth Equals/Keeps Up With High Inflation In this case, both the rate of inflation and rent growth are equal at 5%. Let’s do the math. GOI – $1 million x 5% rent growth = $1,050,000 Expense growth – $500,000 x 5% inflation = $525,000 NOI – $1,050,000 – $525,000 = $525,000 NOI = $525,000 Value = NOI / Cap rate $525,000 / 5% = $10,500,000 Value = $10,500,000 Even when rent growth merely keeps up with inflation, the investor still wins (and profits from inflation). An increase in income of 5% equates to a less than $42 increase in rent for each unit per month. The owner’s expenses also went up 5%, costing him or her less than $21 per unit. The increase in yield is cash in your pocket as well as an increase in the equity value of the property. Everybody wins here. Case #3 When the Rent Growth Lags behind High Inflation … Read more
Commercial Real Estate State of the Union in Post Election Era with Chief Economist K. C. Conway
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Learn from an expert who presented directly to Fed Chairman, Ben Bernake during the last economic crisis? He even presents to Fed nowadays.
Skip the CNN, FOXNEWS, and all other mainstream media to learn what’s really going on with the economy by KC Conway, CCIM Chief Economist.
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How bad is the economic damage due to COVID-19
Which asset class is impacted the most and the least?
How Multifamily is impacted due to COVID?
What Congress could do next
and many more things.