Rich West  0:00  

Is that you come over here. And now you have this, this whole network of people that are working on similar problems. And so, you know, someone might have appraised a building that you need for sale comp. Well, now you can walk down the hall and talk to that appraiser and say, hey, what were the motivations of the buyer and seller on that deal? And then they can explain that so much better, because they were sharing. Right. And, you know, that’s just one tiny example of, I think the opportunity in commercial real estate overall, the more that we we share appropriately and and help each other appropriately. I think it’s one of those things that that helps everybody in the health industry. Welcome to

Announcer  0:43  

CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts. 

J Darrin Gross  1:01  

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today, my guest is Rich West.  Rich is the general manager at Lightbox, where he oversees their lender and valuation business. Prior to joining Lightbox, he spent 13 years at CBRE. Most recently running the Americas valuation business, the largest valuation firm in the world. And in just a minute, we’re going to speak with rich about lending volume trends and commercial property tech tools like light box valuation. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do to help. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. You can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that I want to welcome my guest. Rich Welcome to CRE PN Radio.

Rich West  2:32  

Thank you.

J Darrin Gross  2:34  

Well, I’m looking forward to our talk today. Before we get started, if you could take just a minute and share with the listeners a little bit about your background.

Rich West  2:44  

Sure, started off right at the worst possible time around 1991. Right when the right when the real estate market was falling apart. And did did some consulting gigs with Arthur Andersen spent about 10 years on the investment side. And then for some reason really was family related. Went into commercial real estate valuation, which was actually really fascinating. It really helps you get into the nuts and bolts of what drives value, right? and ended up running the Americas practice and care of which really, I was no longer a an appraiser or a real expert at that point, I was just more of an appraisal psychologist I think. And then, but more recently came over to light box which has a various commercial real estate data platforms that serve the commercial commercial brokers, commercial lenders, commercial appraisal or valuers, as some of them like to be known. And some mapping analytics and of course, the environmental data business. So hopefully, some of the data that I brought along will be of interest to to your listeners

J Darrin Gross  4:11  

know, I’m really looking forward to it. The You know, I think that back in the day when I was first put in front of a computer and was taught that you know, this is gonna really change the world and and you know, it’s more about single entry input kind of thing. I think that the the use of computers and the collection of the data is actually finally coming to fruition to where a lot of this data that’s been collected for you know, years and years we’re actually seeing it the the fruit of the the collection of it. And I’m excited to see what what you can share with us about what lightbox is doing with data and and some of the data that you’re you’re collecting and and You know, it’s it’s how it’s being perceived views etc. So with that maybe I wonder if we can start with just, you know, if you could explain a little bit more about what lightbox is. And we can go from there.

Rich West  5:15  

Yeah, sure it’s lightbox is a fairly new it’s, it’s, it’s a new company from old companies, right. And so really what it was is we have Silicon Valley investors and in the strategy is in was to, to go out and figure out who are the best in class commercial real estate companies on the on the property tech side, and then bring those companies together with a coherent strategy. So we, so we have a company that powers commercial real estate listings that was purchased. To give you kind of a sense of scale, we’re powering over 50% of all commercial real estate sales, over 10 million. So it’s a little bit more skewed to the investment. Institutional Investor side, we have lender platforms that that power, the actual process of managing vendors, and you might kind of ask yourself, okay, well, why why should I care about that? Well, if you’re a commercial bank, there are some very specific regulations that they need to follow, and some reports and reporting that they need to do, where they manage the appraisers that are on their panels, and the environmental professionals and things like that. So the light box systems power, over 20% of all commercial bank transactions in the US, and I’ll bring some some data out in a minute to kind of talk about 2020. And what we saw in our data. Another company that was purchased is a map based analytics company, where we have layers of commercial real estate parcels. And as you can imagine, a bunch of different other statistics like FEMA maps, and traffic counts, and things like that. So investors and and appraisers, and environmental professionals, its brokers, etc, can look at that data, really understand the property that they’re looking at. And we actually serve data up to companies like Google, Microsoft, Apple, the Department of Defense, Zillow, and, you know, so the, the, if you kind of think about real estate, everything’s, everything’s a map, that’s kind of the way I think of real estate. And so that that company was really important when we purchased that company. And then there’s also another company that powers over 75% of all environmental transaction. So basically, what that means is, is anytime somebody is getting a loan, and they need to have a an environmental report, environmental professionals over 75% of the time rely on the data that we have. So you know, you can see the theme here, right? That’s, it’s, it’s dealing with data that commercial real estate folks have to deal with. But we’re trying to make it easier for for the different participants, so that they can just do what they do, right. If you’re a great appraiser, you want to be a great appraiser, you don’t want to manage data and platforms and things like that. Same thing with lenders, same thing. Certainly with brokers, brokers have no interest in managing data, they want to close deals. And that’s really the thesis of of lightbox, and, and as we’ve were a fairly new company, in terms of all those companies coming together, so we’re still in that in that process of, of merging all the systems together, and and even things like culture, right, you know, hey, are shockingly, our environmental folks are very different from our broker, folks. Right? So so really getting everyone on the same page from that perspective. But in the end, we’re really excited about what we think we can offer to to the business so that people can just go out and and do what they do. And, you know, Darren, maybe we’ll have insurance, commercial commercial insurance services at some point, too.

J Darrin Gross  9:39  

I don’t doubt it. I think that, you know, the data is is driving everything. I know, the insurance decisions that we used to have conversations with underwriters, in kind of, you know, if you’d been bringing a lot of business somebody when there was something maybe a little outside of the box, they might give you a pass on it. You know, anymore big data’s got the controls are on that thing. And there’s a hard line of Yes, on our Atlanta now. And if you’re you’re not inside the box, you’re outside the box, if you’re outside of the box, that’s a no. And, and it’s, it’s, it’s frustrating from a from a standpoint of somebody, it’s used to having that conversation and working through the problems to the solution, as opposed to the machine saying, yes, no, yes, no, because, you know, and I think there’s, there’s a lot, I see that the good in it, because a lot of the data is useful to be used. But I don’t know that, that at least my experience, that always that the people that are interpreting, interpreting the data, understand the implications of the data is more of a, like a go, No Go loss, no loss or, and I am assuming then financial models are all that way. But then there’s got to be some sort of a, or I would assume that over time, there’ll be additional vendors or sources or resources that will recognize the opportunity in those gaps, you know, that the other machines have kind of fine tuned down to safe, you’re not safe kind of thing. So

Rich West  11:10  

especially commercial real estate, because you know, commercial real estate really is is a complex proposition, I mean, you can have two buildings that look identical. But as you and I both know, that it could be completely different circumstances, one could have a long term lease to triple, triple, you know, the best possible credit out there. And another one could have a bunch of month to month leases that in the you know, the income characteristics of those buildings are very different. In our, you know, really our mission here. And part of the reason why I came from CBR ri over here was, I recognize that the industry really needed to manage data well, so that those nuances would come out. Right, so we’re not just making these black and white decisions, we’re actually able to quickly ingest large quantities of data, and then also put it in context, right? I mean, things like, yeah, there might be a metric that’s, that’s outside of the box, on a deal, but there actually could be a good reason for that, you know, one of the kind of silly examples I guess I have is, let’s pretend like you’re, you’re looking at a an office building. And the utilities, the utility expense just looks completely wrong, right, compared to the market. Well, you know, good commercial real estate professionals would get to the bottom of that, and it could be that there’s a, there’s a piece of excess land off to the side, and they have an obligation to, you know, maintain that, that excess land. And so of course, the utilities should be outside of the box. In that case, in fact, that might be an opportunity to expand the building, you know, at the right time. So there’s, there’s, there’s so many of those, those, those nuanced stories that we run across, and I’m sure in insurance, you run into this all the time, or, or as an investor. And so getting to those, those nuances quickly. I think that’s part of the good that big data and, and, you know, managing all this data can can help with.

J Darrin Gross  13:23  

So let me ask you, on that example, there the data and that, you know, how quickly is the data? Is it real time? Is it? What’s the lag? And I guess, having asked that question, you’ve got multiple different platforms. So I’m assuming that, you know, an environmental might be a different lead time from, you know, a plotline or, you know, some sort of some kind of county record, or, or can you give us any kind of a sense of, is this just like a snapshot? You know, are we looking at snapshots in time? Is there are they date stamped as to when the information was collected? Is there what is what is the user getting, when they when they, and it gets even back? On? mersive? Is this a subscription base type, type platform? So,

Rich West  14:14  

yeah, yeah, we have, you know, there’s various products that we have for whoever it depends on, you know, who the who the customer is. So, for example, that, that location based analytics business I was talking about, there’s a product that that company’s been selling for years called land vision. And that’s kind of probably what most of the commercial real estate folks would would be familiar with. And to get to, you know, to answer your question on the how often the data is refreshed. It kind of depends on the source. You know, you can look at, like, like FEMA flood maps, right. I mean, those those could be 10 years old, and FEMA hasn’t really done anything with it. Or or traffic counts, right. Those would typically be, you know, once a year, you’d probably get refreshed traffic counts, you know, property tax information, sometimes that gets updated twice, twice a year, you know, depending on what the, what the cycle is. So it really depends on the data source. And then we try to be as transparent as we can about, hey, how often did we go back to the source to refresh that data? So that the user can the customer can say, okay, you know, what, I’ve got enough information here, that I feel like I can make a good real estate decision.

J Darrin Gross  15:35  

Got it? So let me ask you to so the the different sources of information, it sounds like there’s kind of a physical characteristic of the, from the maps, you know, basis to FEMA will tell you if there’s flood traffic counts will tell you, you know, various things, or their financial model, assuming you mentioned, you know, obviously, property tax would be, I mean, a piece of that financial model. Are there other things that that you, that you look at, for like a financial, on a financial basis?

Rich West  16:12  

Yeah. It usually it’s usually, it’s usually anchored to our customer. So friends, to give you an example, you could have a broker who’s looking at a deal. And they’re, they’re about to go to market and sell it. Well, the, the actual owner gave them very, very detailed information, that’s, that’s very up to date, right, they’ve got the latest rent roll with the list of tenants, they have the latest financials on the property, all of the latest amendments to the leases and things like that. So, you know, clearly, that’s confidential information. And, you know, we’ve got that in a lockbox right for that customer. But that’s a super high resolution look, where you flip that over into, let’s say, there’s a lender that becomes involved for the buyer. Well, they’re gonna get, they’re going to get a super detailed look, and probably a very similar look, that that was in the due diligence package from the sale, flipping over to the environmental person and the, you know, maybe the appraiser that was hired, they’re going to look at that same information. So so so from that perspective, we’re stewards have extremely high resolution extremely, extremely detailed information. And really, what we’re what’s on our roadmap is, okay, how do we take, you know, when it’s appropriate, when that we, you know, when it’s clear that the data rights makes sense? When can we take those details, and then aggregate those to deliver aggregated data products, back to our customers where they can say, you know, hey, I’m going into, to Phoenix, to go look at office buildings, and they’re able to look at benchmarks that are driven off of that incredibly granular data. But at the same time, the people that that have the data from the beginning are comfortable that, hey, this, this is anonymous, you know, my, my confidential information is safe. And then I’m benefiting from that increased transparency, as well. There’s, you know, back in my days, when I was an investor in it, for institutional capital allocation, we talked a lot about transparency would actually increase the efficiency, it makes the market more efficient, which actually will drive more capital to that market. And I kind of see a parallel here where, you know, as you get more and more efficient and transparent, that actually is a good thing for overall value.

J Darrin Gross  19:00  

Yeah, and I think there’s, you know, every time that I think that it’s going to produce all of the, the, you know, the details to where all the information is going to be every there’s gonna be a level playing field, there’s usually somebody that’s, like two steps ahead, that recognizes the things that that the model doesn’t, which still gives them the opportunity to find the value that others don’t recognize. Because I think that, you know, one of the beauties of real estate is that two people can look at the same piece of real estate Same deal and come up with totally different conclusions, and perhaps an offer price or what they they see the value as or the opportunity. And so, you know, that creative aspect, I don’t think we’ll ever leave real estate because it’s again, you know, you’re looking at all of the, the applications, whether it be land, land use laws or permitting or maybe there’s something coming in the pipe some development or it’s going to be rezoned, or you know, those things does this look at You know, any kind of does it track any kind of pending law changes, zoning changes things that are in the pipe.

Rich West  20:11  

Um, so so far know what what we’re really good at doing is when something becomes public information in I’m talking about more zoning and that sort of thing, we’re really good at aggregating that sort of thing. But that’s absolutely still the secret sauce, I think of the local investor, the local broker, where they really understand what’s coming. And then hopefully, they’re able to, you know, use these these data products, which are really national and scale to to add that to their quiver. So then they can say, Okay, I’ve got all this, you know, the basic information here, and then I’ve got my secret sauce, you know, I know what’s going on, I know what the, I know what the new mayor that was just selected, might do to the entitlement process. Now, I’m just making stuff up at this point.

J Darrin Gross  21:03  

But right, but I think that it just kind of illustrates that there’s always, you know, a piece that you really can’t quantify with data that goes to the local knowledge of the marketplace, and, you know, its potential use. But, but I do, like, you know, just the the concept of some sort of more of a uniform presentation, I mean, as an investor, if you’re constantly relying on local knowledge, you’re, you’re really at a loss unless you’re local. If you’re trying to come into a market, you just, you know, try and eliminate as many of the nuances as possible to where you can, you can start with a base level of understanding and then dig for the nuance or whatever that might be unique to the area or to the marketplace. That makes a lot of sense. Do you find that that, you know, brokers are the primary user of the technology is that the, I mean, you mentioned these others of, you know, lenders, and any, you know, mentioned Amazon and other things, which, which definitely is sexy to know that you’re, you know, you’re the provider of these types of things, but I’m just from the standpoint of just the presentation of the information is, is it primarily brokers that are really the ones that kind of lean on this and look for the benefits?

Rich West  22:25  

That’s a great question. If I was going to look at the intensity of use, I would probably look to the appraisers and the engineers first. Right. So those are the folks that are, that are, that are writing, the appraisals that are putting together the environmental in the property condition assessment reports, those people are very intense users of our products, then I would probably switch that I’d go if I kind of swim upstream a little bit, I’d say lenders, you know, lenders, you know, they’re they’re looking at data, a lot of them, I mean, some of our bigger customers, you know, the, I won’t name any names, but the too big to fail customers. They have, you know, whole banks of PhD data scientists that are that are combing through data, very, very sophisticated users of data. And then you, you know, you kind of flip to the brokerage side, and I would say that, and broker, you know, I have a lot of friends that are brokers, you know, they’re probably shooting from the hip a little bit more, right. I’ve absolutely seen in the commercial real estate side, some brokers that have taken a different tack, you know, they’re very data driven, you know, they try to, they try to kind of marry their intuition about the market and what what buyers and sellers are going to do with data. And frankly, I think those are probably some of the best brokers. There was a, there was this one team that and they did this fairly early, where it was, and I won’t say the market, but it wasn’t a super high density market. And, and they literally had, it was something like 25 square blocks that they work that they that that was where they focus was 25 square blocks, and they literally had the rent rolls of every single one of these buildings, you know, legitimately right, like, knowing the owners and knowing what was going on. And, and so because they had this, essentially, I don’t want to say perfect knowledge, but pretty much perfect knowledge of this of this market area. And in the way that they conducted themselves. They were incredibly effective. I mean, anyone that was trying to get a sale done in this area, they kind of would just go to this, this team, it and luckily the team was very open, you know, they didn’t kind of use you know, use their knowledge for evil. I mean, they kind of use their knowledge for good. You know, which can be That can go the other way, right? But it kind of gives you a sense of, of, you know, what a great broker could do. And I know that was a really long answer to your question. I wanted to qualify it because I was afraid that brokers would get mad at me and say, Hey, wait a minute, I, you know, I look at the data, there absolutely, are brokers that do look at the data. But, you know, on average, I’d say that they probably look at it less than then the lenders and the appraisers and the consultants

J Darrin Gross  25:26  

got to make sense, I think the the broker, the primary job of the broker is to get the listing or to get the, you know, the purchase sale agreement. I mean, it’s to bring parties together. I mean, that’s, that’s their job. And, and, you know, I think that myself, and others, would like to think that they’ve come through and found all the things that are going to, you know, be a guardian for you as you go through the transaction. And then they may be a little bit more than, than what they see themselves as I mean, there’s certainly most I think the professional brokers are out there to try and guide you and not get you into a bad deal. But I’ve seen, you know, the, the ones that are happy just to make the sale and, and not looking for the next sale from, or the next purchase from you, kind of thing, which is kind of sad sometimes. But, you know, it’s a buyer beware market. And I think the commercial real estate, by its nature is you know, it’s designed for more of a sophisticated participant, you know, so if you’re, if you’re not, you know, if you’re not sharp enough to understand that these things exist, or these these, you know, potential hazards exist, you’re, you’re, you’re probably going to be played the fool or have, you know, you’re not going to come out on the better end of the thing unless you out on that deal. But you’ll learn on that one, and you won’t let that happen again.

Rich West  26:51  

Yeah, and I think the best brokers that I got to interact with as an appraiser, especially because of all the, you know, the, the deals that we would see, the great brokers were absolutely, I mean, they were definitely trying to paint a picture of a market when they were when they had a listing. But I think the best ones were ones that really understood the data. They were, they were really truthful. I mean, they, they, they definitely, you know, they were again, they’re trying to paint the picture, as best they could about the market and the property. But, but they were truthful. And they would say, hey, like, Look, this is something that could go wrong. I think this is the way you mitigate it, and that’s fine. But that in the end, I think the takeaway if I was, if I was a buyer or a seller, finding a good broker, I think is really smart strategy. I think Brian Martin,

J Darrin Gross  27:49  

yeah, no, I wouldn’t disagree. And I certainly don’t mean to castigate or suggest that in any way, shape, or form that they don’t do that. I just know that my years of doing insurance and having these surprise calls at the closing, you know, about how they need flood insurance or something like that. And I’m, like, you know, guys, that should have been, like, top of the list on the due diligence. You know, we’re, you know, it’s always kind of like, whose responsibility is it? kind of thing at the end of the day? It’s, it’s the buyer to make sure that that was looked at, but it seems like there’s there are things like that, that were available that somebody along the way could have presented. And historically, it’s been the bank, that’s been the one that said, hey, look, you’re gonna have to have flood insurance. They may not disclose it till the closing. But

Rich West  28:42  

surprise, yeah. But

J Darrin Gross  28:46  

you know, it’s interesting. You mentioned the the different parties and how more of the technical people really rely on the information. more so. You know, it occurred to me as much as you guys are an aggregator of information, you’re also a disseminator. In on on these, these other users of your information you mentioned, like Zillow, and and Google, are they are they plug in your information into their, their distribution? Or they basically looking at it more of a global for analysis? Or, I mean, is it figures API? I mean, are they taking your information and plug it in into theirs and presented as their information?

Rich West  29:29  

Yeah, and I’ll preface this with a disclaimer. The engineers over here at lightbox are unbelievable, and they would be kicking me right now and saying, rich, please don’t describe this, because you’re gonna blow it from it. But but I think this

J Darrin Gross  29:44  

offer disclaimer,

Rich West  29:46  

for our purposes, I think this will this will this will be fine, right? So So basically, the way it works is there’s a there’s an API, and it’s called spatial stream, and so you could you know, give you two case studies kind of give you a sense of how it works. So one of them was, it was a state government. And they actually already had a bunch of they had they had mapping data already. And what they were trying to do is they were trying to figure out what the what broadband availability was. Literally, I think it might have been zip code by zip code, right? And, and so what they did was they ingested the spatial stream data, and then they overlaid that data from the telecoms. So then they could go in and say, Okay, in this code, this is what broadband availability is. And it was all the way down to things like, you know, how strong were the were the 4g, and 5g potential signals from, you know, the rise ins and the 18 T’s of the world. So that’s kind of a, that’s kind of an extreme case, you know, that’s a very sophisticated customer. Obviously, like Google is an extremely sophisticated customer and kind of getting give you an example of what they’re doing. If you look at Google Maps, or Google Earth, when you’re zooming in, you can see all these layers, right? You’ve got the reviews of maybe local retailers and things like that. And then whenever you see a, an actual parcel, like an assessor’s parcel, that’s data that they’re ingesting from us, and then putting, you know, putting that into their, into their stack. Not every you know, as you can imagine, right, like, not everybody has got a whole engineering staff and, and all this data on their own. And so, you know, maybe it’s a brokerage team of 10 people or something like that, they’ll actually just subscribe to like land vision itself. And they’ll put their own data layers, you know, in the actual application itself, as opposed to just consuming the data and putting it into theirs. So you can kind of go both ways, basically. No, I

J Darrin Gross  32:07  

love that, because my, you know, a little bit of working with different platforms and stuff, and recognizing the fact that they could talk to each other. But depending on how valuable you thought your information was, or how special you thought your platform was, you could make it prohibitive to where it basically, you know, it, yeah, you could, but it was going to essentially require that you not based on cost or average. And I just thought, you know, it’s silly, because it was basically more of a fear mindset is what I kind of took it as opposed to a, an opportunity. You know, if you have a platform that that the marketplace is using, and you could add additional info into that, that would make yours even more powerful. How cool would that be, as opposed to not not allowing that to happen, and trying to keep everybody in your little thing, not recognizing that somebody else is going to say, you know, there’s a better way to is, if you’re in a box, I’m gonna, you know, and, and also, now, they’re outside looking in. Whereas before, they had the, the, you know, the tight hold on the market, cuz I have seen insurance and it’s just, it’s, it’s, it’s frustrating to say the least.

Rich West  33:25  

Yeah, and it’s interesting. I mean, since I’ve come over to the technology side of the, of the, of the business from care, I’ve noticed that there’s, there’s a lot of really interesting partnerships that that exist in the in the property tech world. So like, this isn’t really a property tech thing. But, for example, you know, most of the time, you’re not really maintaining servers and things like that anymore, right? You’re using, like Amazon Web Services, or Microsoft as your, and you’re paying them for space in their data centers. Because that’s something that they’re great at, right? I mean, they’ve got they’ve got data centers that are in secret locations that are redundant, and in for, you know, each little company to try to maintain servers in multiple locations, all the maintenance, it just doesn’t make any sense. You know, so that specialization, makes sense. And, and that’s really, you know, you see that over and over again, in the technology field. And, you know, using tools, like API’s to do these deals back and forth. It absolutely happens a lot in this in this side of the fence, which I was kind of surprised by that. Frankly, you know, you know, usually when you’re in commercial real estate, you’re kind of you’ve kind of got all your stuff and I don’t want to share anything and

J Darrin Gross  34:54  

yeah, that’s what that’s the make sure that’s what you know, that’s your value is the what you have and others Okay, I think so

Rich West  35:01  

yeah. I mean, there’s a kind of a funny story when I would, I would, with my team recruited appraisers to come over to Seabury. And also work like at Cushman Wakefield for three years, which is another great firm. We would, you know, the appraisers would come in, and they’d say, Well, okay, I want to hide all I want to hide everything. I only want you and I don’t want anyone to see anything that I’m working on. And and I’d say no, it’s actually completely the opposite. You come over here. And now you have this, this whole network of people that are working on similar problems. And so, you know, someone might have appraised a building that you need for sale comp, well, now you can walk down the hall and talk to that appraiser and say, hey, what were the motivations of the buyer and seller on that deal? And then they can explain that so much better? Because they were sharing? Right. And, you know, that’s just one tiny example of, I think, the opportunity in commercial real estate overall, the more that we we share appropriately and, and help each other appropriately. I think it’s one of those things that that helps everybody in the healthcare industry. No,

J Darrin Gross  36:11  

I think there’s a lot of truth in that. You know, what to ask you? You know, it sounds like some of this information, maybe a lot of the information that you guys are gathering is maybe provided by, you know, City County municipalities is that I’m just thinking of property taxes. And, and, you know, chain of title kind of thing is that, is that a big part of what you guys are doing, as far as that who you work with to get the information?

Rich West  36:46  

It is. It mean, we’ve got public information sources, some of it, we actually have deals with other companies that actually, you know, that get there that they’re actually the primary where they’re getting the information, we’re collecting information, and aggregating information from our customers. So, you know, some of the data that I brought that I can I can share in a minute. On listing trends, and, and lending slash appraisal trends, we’re actually collecting that in real time, you know, as those transactions are running through our system, you know, to give you kind of a sense of it, like, in, on average, in an average year, almost a half a billion dollars of appraisal and property condition assessment and environmental reports are running through our platforms, you know, in terms of a lender, you know, hires an appraiser hires an environmental professional, you know, all all, you know, that’s, that’s all running through our platforms. And so we’re, we’re collecting that data. And in so we’re, so we’re able to say, Okay, well, let’s look at those trends. And then let’s, let’s maybe look at, at rent data that’s coming out of, you know, Cushman and Wakefield or CBR re, is there a correlation here, you know, what’s going on in the hotel market? And so we’re really grabbing data from from many, many 1000s of sources.

J Darrin Gross  38:16  

Well, and I think one of the things that I’m, I recognize is that all the municipalities are typically cash strapped with, you know, just all the services they provide. And, and I would think that it would be a neat possibility for you guys, for you and your partners to partner with some of these municipalities to whether you were the kind of the backbone source of the data, you know, the, how it stored or whatever, to where they had access to it. And and I mean, I’m just recognizing the, you know, if not, it seems like there’s a duplication of things. Is that is any of that exists? Is there any kind of relationship with the municipalities like that for

Rich West  39:04  

you? Yeah, yeah, there’s actually, we actually have quite a few government customers, and, you know, there that are using our platforms to manage their data, so they can just worry about governing whatever they’re governing, as opposed to managing data.

J Darrin Gross  39:22  

Was this a just, you know, as you described it, the Amazons and, and Microsoft’s of, you know, huge farms of servers to to store all this and, and anymore, who would just be well, there’s certainly a better way to use your, your money and and your talent than that, to have that as a, you know, something that’s that’s been done at a lower level than then it’s available to you and, and I think the other thing I recognize too, is that how often they the information is presented in in different ways. To where, you know, you may be very fluent in one Eunice apologies, presentation of the information. But if you go to the next county over or cross the state line or something like that, you can’t really make sense of it. And for some, some sort of a big data firm, whether it be in a lightbox or others, but just to be able to cast forth through that to where the presentation wasn’t always, you know, like, you feel like you’re in a different country or something like that. Yeah.

Rich West  40:29  

Yeah. And that’s, that’s kind of part of, you know, part of what we’re what we’re trying to do is we’re trying to standardize things. So that, you know, if you crossover from California to Arizona to, to Oregon, you’re still getting that you’re still getting a consistent data feed, and you can go, Okay, I can, I can sort this in my mind. You know, and one other thing, I was just thinking about that you mentioned earlier, this, this is this issue of specialization. You know, you layer on security on top of all this, and you think about, okay, if if I’m using a specialty firm to manage data? Okay, I don’t, I don’t need to worry about what the latest encryption scheme is, or which one was hacked and which one wasn’t and keeping the patches up to date on the servers. And, you know, all of all of the things that, you know, again, you kind of have to keep in front of if you’re if you’re going to be in that business. So that’s, that’s the other big opportunity. I see.

J Darrin Gross  41:30  

Yeah, that’s, that is a real issue, you know, used to be that it was, you know, some sort of low level thing that somebody got all your credit card or your laptop, or somebody whose laptop turned up missing, and you got notified. But that’s, we’re way beyond that now. Yeah.

Rich West  41:48  

Hey, I wanted to

J Darrin Gross  41:52  

ask you, I have this written down, I carry my writing now. You mentioned that you guys focus on the properties of transactions above 10 million. Is that Is there any potential for that coming down to a lower level as you as you build out the

Rich West  42:18  

platform? Absolutely. In fact, it is. It, it’s really just an artifact of, of really how we grew up, we, we really started years ago targeting the brokers that were handling more complex transactions. And then as the as the platform matured, we have more and more brokers that are focused on smaller deals, there’s actually a significant number of small balance multifamily deals that are running through the platform now that are, you know, those are the ones that people are maybe you’re using agency financing for. So, so really, the, you know, as we as we get more and more customers, and as we grow, I think that number is going to end up sliding down in a good way.

J Darrin Gross  43:08  

Yeah, I would think that it would make a lot of sense. Clearly, it’s, you know, it’s a, you know, it’s kind of frustrating when you recognize that there’s more bigger, better, stronger tools available, but you’re just not big enough yet the kind of thing and if you’re a smaller investor, or something like that, there might be more of a, you know, a way to access that and, and take advantage of that. I wanted to ask you, you mentioned some of the the lending and listing information you’ve got should tell the tell us what you got that you can kind of explain.

Rich West  43:46  

Yeah, so So what the first thing I did was I looked at, and I’m looking down at my notes here, so I don’t Sure, get this wrong. So I pulled the the year end, listing data. And so what this data is, is new commercial listings that are hitting our platform. And, you know, the thesis was, Hey, what happened to new sale listings, in the commercial real estate market? When the what you know, after the market recognized COVID? Right. And so, the first kind of the headline was, I said, Okay, well, let’s look at how many listings came to market in January versus how many listings came in April. Right. You know, that’s, that was really the A to B, and new listings. Were down 65%. Well, in April 65%. Yeah.

J Darrin Gross  44:37  

And then I’m able to look at that from like a year prior to see if there was a present the correlation from January to April of 19 versus 20. zoltar.

Rich West  44:48  

Yeah, like, typically, what you’d see is you’d see that number around flat, right, you’d cut you kind of in the first half of the year, that transaction, you know, level is fairly, you know, the number of deals that are coming to market is fairly even. So that that that decline of 65% was, you know, we’d never seen anything like that. And then I was curious. Okay, well, what about property types? Right, right. And the so is, as you can probably guess, the property type that was down 91%. And again, this is January to April, was hospitality. Yeah. Makes sense, right.

J Darrin Gross  45:26  

Not a good year to be in the hospitality or retail.

Rich West  45:31  

And if it makes you feel any better, you know, everything else was down anywhere from 50 to 75%. So that was that, you know, January to April. But the but the we this is the most interesting part. So then, by June, right, they were actually close to normal. So the number of listings come to market in June was about normal relative to the year before. And to give you kind of a sense, from May to June list, new listings were up 56%, up 56% 56%. So you can see this, you know, kind of whipsaw effect that happened. And, and then the listing levels just kept on increasing through the end of September. And then, and then they started to fall off in the fourth quarter, which is normal, right? sure how to, you kind of see those listings build up through the end of September, and then, you know, as you know, and then the brokers kind of process those deals to the end of the year. And then typically, in January, that’s when you see that new surge, you know, of new listings to come to the market. That’s kind of that normal? It almost looks like a tide chart. Yeah, beach or something. So that was that was the listing data.

J Darrin Gross  46:48  

Let me ask you that. So the, I mean, we all know that march was kind of the, you know, the month of chaos, if you will, of when everybody was just kind of like what do we do? And actually, that all makes sense that have dropped off the fact that it came back suggest that people realize like, oh, okay, we’re gonna be able to go forward. I’m curious if you can relate, or if any of your information would, would speak to how interest rates correlated during that, because I think that was kind of one of the things that the Fed was very adamant about how they were not going to monkey with the rates, they were going to keep them low, they were going to, you know, do everything they could all the tools they had were available and were being used or are ready to be used. Does any of your information, reflect that?

Rich West  47:41  

Yeah, I didn’t run a correlation to that. But But I think there actually might be some data that that that could speak to that.

J Darrin Gross  47:50  

No, because I was thinking that the market hates uncertainty from the standpoint of what’s going to happen kind of thing. So that’s, that’s that January to April thing, but I mean, rates. You know, I think everybody was expecting rates to go back up at the beginning of the year. Yep. You know, and the fact that they they’ve gone down or or May, and I think, you know, I think this is what was kind of interesting to me when when this thing first hit, there was this like mad scramble that I heard in the marketplace that was like, trying to replay the tapes, and the lessons learned from a wait Oh, nine kind of thing. And just like salivating that they’re gonna get a reprice refinance everything. And I know, a couple of brokers, mortgage brokers I spoke with were like, well, the banks on how to price anything, even though the Fed was dropping the prime, the you know, I think in a lot of cases, the spread actually increased, that the lenders were able to make on the loan, as opposed to a, you know, if the if the if the spread was two points before, it may have been two and a half or three points going forward, as opposed to everybody’s passing on that two points. Two points spread over the, you know, the prime rate.

Rich West  49:04  

Yeah, I think you’re right. I mean, I think there are a couple things going on. There was the, you know, I did hear this from a lot of lenders, number one, they were trying to figure out, Okay, well, how do we, how do we price anything? And this was, you know, kind of that April, May, whenever, you know, everything was just upside down? How long is this going to last? And then there were some of those those Was it the the payroll protection programs? I’m not I’m not saying that exactly. Right. But

J Darrin Gross  49:38  

yeah, those PPP in the ideal and

Rich West  49:41  

yeah, and what I heard from a lot of my lender clients was they said, you know, we’ve just completely focused on that. And so we’re not going to we’ve we’ve taken every everyone on the floor, and we’re focusing on that, and we’ll come back to commercial real estate later. In the numbers, actually, I’ll, I’ll talk a little bit about this, because they are lending related, kind of bore that out. So what I’ve got next is commercial appraisal year over year volume. So this, this doesn’t necessarily mean that that alone closed, but it means that the lender ordered an appraisal, you know, it’s kind of a proxy to what they’re up to. And, and so through November total appraisal orders were up 4%. So that’s 2020 versus 2019. I was nice buy that. Yeah.

J Darrin Gross  50:37  

And that’s gone from January to November during

Rich West  50:40  

Yeah. And then I’ll tell you the kind of the story of the roller coaster because it was a roller coaster. Yeah. So first, first quarter, January through March, year, over year, volumes, were up anywhere from 15 to 23%. Oh,

J Darrin Gross  50:55  

so first quarter was just,

Rich West  50:57  

you know, starting out really well. And 15%, up in March. So that was still, I think people were still trying to figure out what was going to happen. April and May heads down 40. And then 35%. And this is year over year, this is when it just works. And then after that, you know, that was really the whole that was created in April and May. But then June was was only 4%, down year over year. So which is which is a that’s a stark difference from down 35. down for that’s a huge swing. And then it was up three, up four in August. September was up 20. October was up 32%. And then finally November was up 17%. And, you know, so basically there’s this big hole that was created. And then and then after June, it just completely ramped up. And I think a lot of it has to do with you know, a lot of lenders were trying to maybe get valuations done so they could figure out what was on their books. There were probably some of it was, you know, the availability capital, hey, let’s, let’s, we got to go ahead and get some deals done that we were going to get done. And, and I also broke that down by property type. So you look at hotels, this was really fascinating. Hotel appraisal numbers were up 25% in two year. Yes. Wow. And again, and then so I’ll just I’ll just kind of hold that thought in your mind. Flip over to industrial industrial was up 8%. Right. But I think those are actually opposite reasons. I think all the appraisals were ordered for the hotels, because there was a lot of uncertainty, what did these things worth so that that’s really what drove I think a lot of the the hotel volume? And then I think not necessarily

J Darrin Gross  53:01  

a deal but maybe a lender trying to gauge where are we at with this thing? How bad is it?

Rich West  53:07  

That’s exactly right. And industrial, I think was you know, that that had to do with all of the e commerce gains. And I mean, the the industrial properties, you know, I think really have, they were already benefiting from the macro trends. But then this hit and they benefited there. So I my theory is is that industrial was was really because industrial was more in demand. And then everything else was fairly flat. And then the final cut that I did on the data was by market. So I was curious. Okay, well, what, what winners and losers did we have? And so, the first cut was okay, let’s just take the top five. What happened in the big markets, right? You’ve got New York, LA Chicago, Houston, Dallas, appraisal volumes were up in 2,028% in those five markets, if you just kind of combine them then you get to the next five which is Miami, Seattle, Atlanta, Philly and DC down seven which is which is I’m not sure what to make of that all this report the audit report the

J Darrin Gross  54:20  

what? Well, especially cuz uh, you know, Miami being in Florida, everything points to Florida sunshine. They’ve been open all time. That was kind of I want to kind of throw it. I mean, that’s only one of the five though. So Seattle.

Rich West  54:35  

And that was accurate. I just took aggregating them together said, Okay, well, what do you know, what are these? What’s the what are the dynamics? And then I said, Okay, well, wait a minute. Look what let’s just forget about all that. Let’s just look at the individual markets, right. What locations were up and what locations were down. Chicago was up 48%. Well, I was absolutely Backed by that number Iser appraisals ordered, appraisals ordered, San Diego was up 21%, Austin was up 19%, Houston was up 12. And those are the those are the big swings in terms of year over year change. And then down. So the market was down the most was Atlanta 18%, down, Miami down 13, Tampa down 11. Charlotte down nine, and then I threw this one in because I know you’re up in Oregon, Seattle, Portland was down 5%. So I have no idea if that’s because of all the unrest perceived on, ya know, we’ve

J Darrin Gross  55:39  

certainly had her share bad press this year with, you know, all the protests that but but no, I think, you know, overall, I think it to me, it tracks a lot of the uncertainty that was recognized early on in the year. And then as things stabilized, and people felt like, okay, the sky is not falling, we’ve just got to mask up and maintain some distance and try and get through this. deals are being done, you know, still some uncertainty, but less uncertainty than there was, say March, April. Yeah, you know, when we thought it was just gonna be a couple of weeks of thing. I mean, you know, the truthfully, you know, looking forward, the vaccines are being, you know, administered or people receiving them. The banks are, you know, the Fed is back, the banks are, the money is available. I know, I’m seeing a lot of deals getting done here, end of the year. And I think probably more so than what people had expected. And I think part of the underwriting I think, for the buyer has changed based on, you know, calculating some of these lending rates that they hadn’t anticipated. I know, I’ve heard numerous buyers talk about reserves and stuff that have been, you know, put in place or required now with the banks just based on the uncertainty of things, but none have been too high of a hurdle to keep to do a deal. You know, it’s just been kind of recalibrating. So. Yeah, that’s, that’s, that’s all interesting. And I guess I don’t know that I would have thought. I think the interesting picture that it tells to me is the swing from going off, then on and then back up into where you’re finishing at or above. year over year.

Rich West  57:32  

Yeah. Yeah. Pretty impressive. It was Yeah. And it was funny, because I was talking to some old colleagues over at the big appraisal shops, and they said, and those are, those are customers of mine. Now, they said that we are totally slammed, we can’t, you know, we have no capacity. And I had lenders complaining to me, I just got a quote from an appraiser. Eight weeks. You might as well not even give me a quote, right, eight weeks Come on. And they were they were having trouble finding people that actually, you know, get deals done, which was completely the opposite of what was going on in April.

J Darrin Gross  58:08  

Was that that really is the bottleneck now is getting an appraisal done? That’s kind of hanging out the whole, you know, closing timeline? Yeah. I’m curious. You know, we’ve touched on a little bit about hospitality being down, we haven’t talked about office, per se, do you have any kind of crystal ball? Or does your, your information shade, what you’re seeing, you know, in a way that you can tell anything, what you see may be coming, specifically with Office, I mean, I’ve had conversations repeatedly throughout this, I mean, here I am in a spare bedroom, you know, talking to you. But not unlike most of my colleagues and I’ve had many zoom call where guys are in sweats in a, you know, a baseball cap, and we’re doing work, but it’s no longer the the high polish, you know, look nice and show up at the, you know, it the the fancy, you know, place? Are you seeing any of that or you have any sense of how that factor is going forward? Or is that still kind of in the category of the unknown? You know,

Rich West  59:18  

I, I personally think it’s still in the category of the unknown. I think that, you know, some of those open office concepts were, you know, you were, you could go in and and take any desk that you want. I can, I can see people pushing back on that sort of thing. Like, look, I want to have my own space that I know, no one else has touched anything. There’s probably going to be a little bit of a hangover from that. I’m guessing. Personally, I think we’re probably going to be you know, humans are kind of the same, right? I think once the once this is over, and we Don’t, you know, we’re definitely going to have we’re going to learn those lessons that we that we, that we did learn through the pandemic. But I think people do want to be around. I have already heard complaints that teams are less efficient. You know, because if you if you’re all virtual all the time, it’s really difficult to have those, you know, that kind of serendipity moment of, Oh, you know, and I was just thinking about something and wait a minute, let’s get to it. Let’s go on a whiteboard together. And let’s figure that out. You just you don’t have that, that those opportunities when everyone is working at home. So I personally believe that we’re going to, we’re going to get kind of back to normal. And I think a lot of companies will reverse these some of these statements, hey, you can work, you know, forever and ever and ever, you can work at home. I think a lot of companies are going to say, yeah, we need to get people back in the office. Again, that’s my personal take. Maybe because I’m a, you know, I’m the generation XOR that grew up with that in my head. And you know, my kids will tell me, Dad, you’re out of touch. That’s not how people work anymore. But we’ll see how that goes.

J Darrin Gross  1:01:13  

No, we will see I’m sure the future has a few more surprises in place. And in that I’m always reminded, I think it was was a Bogle or who’s the guy came or one of the big mutual funds? jack Bogle, maybe. But I remember one of the things he was saying was that, you know, the, we always think that the next crisis will present itself just like the last crisis, but the reality is, we don’t recognize it coming. Because we don’t know what to look for kind of thing. Yeah. And so kinda learn what you can and keep playing, I guess. But, hey, rich, if we could, I’d like to shift gears here for a second. As I’ve mentioned, and we’ve discussed by day, I’m an insurance broker, and work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider, we first look to see if we can avoid the risk. If we can’t do that, then we look to see if there’s a way to minimize the risk. And then when we can’t avoid nor minimize the risk, we look to transfer the risk. And that’s what an insurance policy is, it’s a risk transfer vehicle. And I like to ask my guests, if they can look at their own situation could be their, within their organization, their clients, investors, tenants, the market, you know, on and on, let you identify what you consider to be the biggest risk. But for clarity, I just want to make clear, I’m not necessarily looking for an insurance related answer. And if you’re willing, I’d like to ask you, Rich West, what is the BIGGEST RISK?

Rich West  1:03:07  

Okay, so the biggest risk for me and I’m going to come at this from my years of experience, looking at buildings, right? And, and living through the, you know, the 2007 2009 era, living through this era. biggest risk in my mind is not talking to your tenants and understanding what your tenants are doing. What what your tenants mindset is how your tenants business is doing? Because in the end, that’s really what drives virtually all value is what the heck, what value is the tenant getting out of the space? And how is their business doing and, and, and what are their problems? So So to me, the biggest risk is being disconnected from what your tenants are doing, you know, whether it’s a building you own, or if it’s a building that you’re you’re looking to purchase.

J Darrin Gross  1:04:08  

No, that’s true. A little communication can go a long ways. And usually doesn’t cost a lot.

Rich West  1:04:16  

just wander around.

J Darrin Gross  1:04:18  

ask some questions, and you will know. Yeah, that’s awesome. Hey, Rich, Where can the listeners go? If they would like to learn more or connect with you?

Rich West  1:04:28  

Sure, sure. Just go to simple just go to light box. R e as in real estate calm, and that all you can virtually that’ll launch you virtually anywhere you need to go.

J Darrin Gross  1:04:42  

Awesome. Rich, I want to say thanks for taking the time today. I’ve enjoyed our talk. I’ve learned a lot. And hope we can do it again

Rich West  1:04:52  

soon. Appreciate it. Thanks so much.

J Darrin Gross  1:04:55  

All right. For our listeners. If you like this episode, don’t forget Like, Share and Subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to commercial real estate pro networks. CRE PN Radio.

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