Man looking at purple city

How generative AI is transforming what’s possible in commercial real estate

Commercial real estate leaders need to evaluate the risks as they seek to leverage the benefits of GenAI in real estate.


In brief
  • Commercial real estate companies continue to identify opportunities to leverage technology and automation to increase sector efficiency and lower costs.
  • GenAI can support property operations, acquisition strategy and portfolio planning in ways that could change how commercial real estate companies do business.
  • A long-term strategic vision for GenAI that can evolve and address the need for safe, responsible and ethical AI use will be essential.

Generative AI (GenAI) is the next step in the evolution of artificial intelligence (AI). GenAI can create new content based on data it has been trained on, which will catalyze foundational shifts in business and operating models and give users the capability to perform an array of tasks at lightning speed. GenAI applications, such as ChatGPT, have already attracted a record number of users and investment from both established technology players and startups across sectors. The potential use cases for GenAI span a wide range of functional areas, including sales and marketing, finance, operations, HR and IT. GenAI is being compared with the digital transformation that started in the early 2000s, which unleashed innovation and disruption across every industry, including real estate.

As with all new technologies, GenAI presents challenges alongside the promised benefits. One of the main challenges is the impact on the existing workforce in functions such as administrative support, legal, IT and customer support. As was the case with digital transformation, the negative impact on jobs will be balanced with the creation of a new ecosystem of jobs and functions that do not exist today. The World Economic Forum predicts automation will actually result in a net increase of 58 million jobs,¹ replacing repetitive tasks and dangerous jobs with challenging work that creates more interfaces with customers and a better product. A lack of transparency, questions about accuracy, and the potential for bias and misinformation are some of the risks that will also need to be addressed with safe, responsible and ethical AI use. In addition, companies need to work through GenAI’s impact on cybersecurity, intellectual property and fraud challenges that will come into play.

 

Real estate is one of many sectors that is transforming itself with GenAI. Real estate companies have faced an operating environment where it is challenging to attract and retain talent, meet increasing investor demands and keep up with technology trends, such as advanced data and analytics and smart buildings. In addition, real estate companies do not want to have to scale their costs in line with growth of assets under management. GenAI has the ability to help address all these challenges.

 

GenAI in real estate

GenAI has a role to play in creating opportunities for greater efficiency, mitigating risk through its ability to rapidly scan data and identify any concerns that may exist, and potentially paving the way for new business models. Use cases for AI in the commercial real estate sector and across the real estate value chain include:


  • Acquisitions. When potential acquisitions are considered, GenAI can enable automation and intelligent analytics for finding, buying and operating assets. The due diligence effort becomes less onerous and more reliable, providing important insights that either support making the move or reveal concerns that prevent a transaction that shouldn’t be made. GenAI can also enhance portfolio planning, scenario planning, contracting and financial analysis.
  • Investor relations. GenAI can also transform customer relationship management, including investor relations. The technology can be used to better target potential investors and to maintain ongoing relationships. Generating marketing materials, investor presentations and answers to investor queries can all be streamlined using GenAI. Investor chatbots can be deployed, giving investors the ability to have their questions answered more efficiently.
  • Business support. HR, IT and legal are typical support functions within real estate, and GenAI can significantly impact all these areas. GenAI can be used in the hiring process by creating job specifications, screening resumes, performing background checks and supporting the interview process. Employee chatbots can streamline HR processes. AI can be used to develop and deploy code for new capabilities and to manage cybersecurity. Typical legal functions, such as contracting and document discovery, can be transformed. Procurement processes, such as vendor selection, bid analysis, purchase order generation and invoicing, can be enhanced.
  • Asset management. GenAI can give asset managers the tools necessary to collect and analyze property-level data more effectively. This will lead to enhanced budgeting and forecasting. There is also the potential for GenAI to be used in leasing, ESG reporting, capital planning and risk identification. Reporting and scenario planning can be streamlined. In addition, specific to real estate investment trusts (REITs) and real estate fund organizations, asset managers can use GenAI to enhance functions like trade processing, performance management, fund accounting and administration. They can also automate operational tasks, like tracking and coding of investment management agreements and other compliance activities, as further outlined in the EY article, “Five priorities for winning with GenAI in wealth and asset management.”
  • Finance and accounting. Generation of financial reports and forecasts, risk assessment and compliance, and fraud detection can all be streamlined with the help of GenAI. Tasks such as invoice generation and processing, payments, and billing have all been automated to some extent but can be further enhanced with AI.
  • Property operations. AI is already being implemented to better manage property operations, such as energy management. GenAI can take this even further with much more dynamic energy optimization. Security and access control can be further enhanced. Tenant chatbots are becoming more pervasive, making processes, such as maintenance requests, account information and rent collection, even more efficient. Reporting can be more robust. Marketing and leasing processes can be significantly enhanced. Generation of marketing materials, tenant acquisition, leasing, and creation of presentations and reports will be impacted by GenAI tools.

AI implementation

Given the wide range of possibilities, real estate companies should start with developing a GenAI approach that includes:

  1. Use case selection and process transformation. This should include company-specific immediate, medium- and long-term applications. Leveraging GenAI is about rethinking how existing activities should be performed. It’s a different mindset — a transformative mindset. A business case should be made as to how GenAI can help the business and what those benefits should be.
  2. Technology roadmap and selection. Conduct “buy/build/acquire/wait” analysis to develop a model and acquisition plan for GenAI implementation. Evaluate the infrastructure that will be needed and create a report with estimated costs and timelines.
  3. Responsible and ethical AI. Organizations must be purposeful and start with robust, responsible AI that performs as promised. First and foremost: train, educate and engage the workforce. Employees need a deeper understanding of AI leading practices and how the organization is using data. To replace uncertainty with confidence, employees should know how to use AI securely, responsibly and ethically. They also want to know more about what the organization itself is doing, including transparency about AI and data use, as well as having third parties review AI applications. It’s important for leadership to work with their risk, compliance and legal teams, as well as teams with experience developing digital policies and procedures, to create guidelines to inform their GenAI approach. Develop a scalable AI governance framework and continuation monitoring processes. Engage in dialogue and conduct scenario planning to mitigate risk and create a plan that puts the organization in the best position to succeed.
  4. Organizational transformation roadmap. Build a plan for what GenAI should look like as it is being implemented and at regular intervals going forward. Formalize both an internal adoption program and an organizational transformation roadmap to outline goals and maintain accountability.
  5. Talent transformation. GenAI adoption will require current employees to upskill themselves on new technology and may require hiring new talent. It will also have an impact on future resource count, especially in areas where GenAI has the most potential to introduce transformation. Aligning people strategy with business strategy is important to drive enterprise transformation.

As part of the technology roadmap and selection process, there is now a proliferation of tools available in the marketplace to start implementing GenAI capabilities. In addition to a cloud infrastructure, key foundational elements of a technology stack required for GenAI include:

  1. Foundation models. These models are trained on a broad set of unlabeled data that can be used for different tasks. Real estate companies will need to build capabilities on top of a foundation model.
  2. Data storage and retrieval. To build GenAI applications, real estate companies will need to build capabilities, such as a semantic layer, to efficiently store and retrieve both structured and unstructured contextual data. Most of the real estate use cases mentioned above rely on internal and external data.
  3. Models and applications. Fine-tuned models and applications will need to be developed for specific use cases. There are application frameworks available that can help to accelerate the development and deployment of models. GenAI tools that help to enable some of the use cases described above have already begun to be developed and will improve over time.
  4. Hosting options. There are two options to host foundational models: third-party hosting or self-hosting. Which option an organization uses will determine the encryption and security levels for the models, prompts and data.

Summary 

GenAI technology is transforming key processes within real estate. Companies need to start developing their AI adoption approach, balancing risks vs. rewards and experimenting with the usage of the technology as they plot a long-term strategy to transform their organizations using GenAI.

About this article

Related articles

How pursuing GenAI can transform mortgage lending

By applying GenAI innovations across the lifecycle, mortgage lenders can gain a strategic advantage. Learn more.

Five priorities for winning with GenAI in wealth and asset management

Wealth and asset managers have the opportunity to reimagine their business models and transform their operations with GenAI.

Mike Lee + 2

Five priorities for harnessing the power of GenAI in banking

For banks with the right strategy, talent and technology, GenAI can transform operations and help reimagine future business models. Learn more.