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Real Estate

Next target for improved data analysis: real estate

Ashbel C. Williams Jr. said technology drives the Florida board’s analytics.

Investors are looking to the future and expect that their real estate portfolios will look very different than they do today.

Technology is growing in importance with asset owners as a way of doing more with fewer resources and increasing returns.

"Technology empowers our analytics," said Ashbel C. Williams Jr., executive director and chief investment officer, Florida State Board of Administration, Tallahassee, which oversees money management of the $160.4 billion pension fund.

Mr. Williams was speaking Oct. 5 on a panel at the Pension Real Estate Association's 28th Annual Institutional Investor Conference in Boston. "It impacts portfolio construction … It drives execution," he said.

Capturing the power of technology and data analytics is gaining significance in a future where it could be difficult for investors to attain their assumed rates of return.

"We're confronting diminishing returns," Mr. Williams said.

Florida manages a big chunk of passive assets in-house, including $70 billion in global equities, for example. It had 8.9% invested in real estate as of July 31, with a target allocation of 10%.

The $56.7 billion Los Angeles County Employees Retirement Association, Pasadena, Calif., is preparing a search for a new real estate administrator. Pension fund officials are surveying the market for a firm that would, in part, help squeeze "some efficiencies" and offer better data capture from its $6.3 billion real estate portfolio, said Jonathan Grabel, chief investment officer.

"We're trying to enhance portfolio analytics in every asset category to increase performance in an expected low-return environment," Mr. Grabel said.

Indeed, institutional investors will soon expect similar sophisticated data analysis for real estate that they are starting to receive from managers in other asset classes, said Robert T. O'Brien, global real estate sector leader and vice chairman at Deloitte LLC.

"Real estate is behind many, if not most, industries in digitizing," and using technology to drive performance, Mr. O'Brien said. When they are assessing real estate managers, asset owners will expect increasing sophistication in data analysis and insights from a micro, neighborhood level, he said.

Smaller asset owners have an even bigger need for technology because they don't have the large enough staff to bring some of the investments in-house or the clout to press managers, including real estate managers, to hold down costs, said Kim Y. Lew, vice chairwoman and chief investment officer of the $3.5 billion endowment of the Carnegie Corporation of New York.

"It's more challenging for us because we don't have the influence over managers," Ms. Lew said, speaking on the same panel as Mr. Williams at the PREA conference. "It's one of my pet peeves that there are different costs for bigger sources of capital."

At the same time, innovations and quickly evolving technological advancements are set to change institutional investors' real estate portfolios.

"Each time there is an inefficiency, something comes in to fill that gap," Ms. Lew said.

In the self-storage real estate sector, for example, it's not just the location of the buildings but the utilization of the software that makes one portfolio better than another, she explained.

In multifamily real estate, design is evolving to emphasize experience with smaller living spaces and larger common areas with shared amenities, Mr. Williams said.

One big change that is coming is the diminished value of properties near to a transportation hub due to ride sharing apps and, at some point, self-driving cars, he said.

The result will be that properties that are farther away from transit hubs will be the new sweet spot for real estate because fewer people will be using public transportation, he said.