Realcomm 2003 Trends - "Intelligent Buildings"

One of the most interesting discoveries at this year's conference was the reemergence of the Intelligent Building. Over the years, opinions have varied on what an Intelligent Building really was. This year we began to see some clarity on this topic.

One of the first goals of the conference was to name and define an Intelligent Building. Over the last 20 years, a number of different names have been given to these projects: intelligent, smart, next-generation, high-performance, digital, automated and so on. This year, Cisco added their suggestion, "netbuilding". Over the next 12-24 months, the industry must attempt to standardize the definition in order to make it easier for the mainstream Commercial Real Estate industry to recognize and understand.

Our second goal was to begin the process of defining what these buildings really are. Ask anyone in a group how they define an Intelligent Building and you are likely to get as many answers as you have people. During one of the Intelligent Building breakout sessions a seasoned Commercial Real Estate professional said he defined an Intelligent Building as one that is fully leased and making a lot of money. Although everyone chuckled, in reality he was not far off. In the end, an Intelligent Building should have higher occupancy, better retention, lower expenses and operate more cost effectively. With that said, the Appraisal Institute and CABA were busy working on ranking methodologies in order to potentially value these properties higher. Once we name and define it, maybe we will find it is worth more.

After three days of intense meetings, we walked away with the feeling that we are on our way to better understanding this new type of Commercial Real Estate. It was not the "Broadband or Bust" concept we saw during the dot.com period, nor was it simply the automated building of the past where the HVAC and lights could be turned on and off remotely. This next generation Commercial Real Estate project seems to be morphing into something more. At the end of the day it seemed like we had three distinct groups all working on the concept of Intelligent Buildings, but all seemed to have a little different take.

Enhanced Tenant Experience The first group seemed interested in creating a better tenant experience. This was done by making broadband and wireless technologies a standard amenity, adding new business processes that evolved around aggressive automation and a digital signage strategy that served as both a marketing and emergency communications vehicle. At the end of the day, this tenant experience is much different than the one found in the standard office or retail project built over the last 20 years.

Building Automation Although building automation has been around for a number of years, the advent of the Internet and its potential for integrated, seamless, local and wide area connectivity has begun to reshape the industry. There are of course the industry standards such as Lon and Bacnet, however, at this year's conference we saw a number of extreme building automation projects in which the standard protocol was simply TCPIP. We are calling these new entries into the building automation arena the "IP Renegades". This is not to suggest that they are doing anything wrong, in fact they are doing a lot right. The reality is, in order for building automation to become mainstream in every building we will most likely see a blending of these groups.

[an error occurred while processing this directive]Business Communications The third prong of an "Intelligent Building" is business communications. This comprises all of the business communications that take place between an owner, a tenant and the multitude of 3rd party providers that service a building. An extreme application of automation and technology in this area assumes that paper is going away. This means that the paper lease, paper check, paper work order and even the paper parking ticket and sticker go away. In this new world the parking system is automated, connected via the Internet to the parking gate and automatically communicates the transaction value to the accounting systems of both the tenant and landlord. It is also safe to assume that you will hit "I Agree" on a website to sign a lease and Electronic Funds Transfer will be the only way to pay the rent.

We believe that the future of the Next-Generation Building is becoming more of a reality than ever. Even though there are at least three very different definitions for an Intelligent Building, we were excited to see all of the groups in the same room. It will not take long for the networking to facilitate the conversations and relationships required to take our buildings to the next level. Even though we are at the beginning of this transformation, we are already seeing great results. As mentioned last week, one of the most interesting trends we saw this year was that many of the Intelligent Buildings being discussed at Realcomm were 100% occupied and running significantly more profitable than the market averages.

Once these groups get together and really begin to define and build these next generation projects, which do achieve higher occupancy, better retention and lower expenses, it will be interesting to see how long it takes for the other 99% of the traditional Commercial Real Estate market to catch on. We believe that the leaders and innovators in our industry are in the midst of defining what the next generation of Commercial Real Estate will look like. As it must have been interesting to watch the world evolve from barns to factories at the end of the agrarian age, it should also be interesting to watch as the Commercial Real Estate we have been building for the last 50 years morphs into something more in line with the new tenant requirements of the 21st century.

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