In case you haven’t heard, one of the biggest CRE projects in history is currently underway in New York, with plans to create decking over approximately 180 acres of some of the busiest rail facilities in the country, serving Amtrak, New Jersey Transit and the Long Island Rail Road. According to the Sunnyside Yard Feasibility Study, this project can bring a host of improvements to Queens, NY, including better transportation, jobs, parks, schools, libraries, housing and community centers.
The project will involve creating 14,000-24,000 housing units, 31-52 acres of open space, new schools, community facilities and retail amenities, costing somewhere between $16 and $19 billion to build out. Noting that “A project of this scale would span several political administrations, multiple economic cycles, and changes to the City’s employment base,” the feasibility study established a series of planning guidelines based on engineering, urban design, and financial constraints to inform future analysis and decision-making.
There’s a high degree of complexity to any commercial real estate valuation. For a transaction between a buyer and seller to occur, all participants in the value chain must understand the risks associated with a commercial real estate asset or portfolio, and this diverse group of stakeholders can be very large, with exacting requirements and differing opinions. Given all these variables, what will it take to perform the calculations on the largest single development project in NYC history?
Multivariate analysis on historical and real-time data
In anticipating what might be required of this project on the valuation side, you have to think about the number of factors that could affect various calculations…the number of input variables could be enormous, far greater than a more typical valuation model. You have to consider general and annualized inflation scenarios, LTV, and square footage ROI by tenant type. You also must think about numerous kinds of real-time data, including analogous property sales figures, hyper-local trends, and vacancy rates. There may even be a need to factor in Internet of Things data streaming from sensors to provide insights into electricity consumption, radical temperature/humidity changes, and other variables associated to commercial and residential housing trends.
It’s also important to note that, unlike conventional CRE deals, this one has macro-economic implications that will affect not just the Queensborough neighborhood or NYC, but the entire state of New York, and probably the entire Northeast corridor. So a host of economic factors may have to be incorporated into the analysis.
There are a number of stakeholders on any CRE deal, so naturally Sunnyside is going to amplify that by orders of magnitude. The analytics of this project could involve close coordination with various government officials and departments; numerous investors; developers; Amtrak, the MTA, and other rail operators; and several teams of technical consultants, just to name a few. When you’ve got this many cooks in the kitchen, the ability to share data with full version control becomes tantamount to its evaluation and sustainability long term.
In short, there needs to be a single repository of information accuracy, something which can only be achieved in the cloud. If the software being used resides on someone’s desktop or even laptop, there’s going to be version control oversight that cannot scale over the long run.
Integration with a wide range of business applications
With so many organizations involved, there will also likely be a need to integrate with numerous other cloud-based software systems to track the inflow and outpouring of financial and demographic data that might influence calculations. There may be the need to leverage APIs to integrate with applications from numerous offices and organizations for accounting, ERP, property management, construction management, and asset management. In other words, the data that informs this analysis can’t reside in silos. It’s the kind of data that all of the organizations working on defining and building Sunnyside Yards are capturing and putting to use in other applications.
On a related note, this also means that the sheer volume of data that will have to be managed will be much greater than the data for your average CRE valuation, at “big data” scale.
As sure as the sun rises, you can bet that a project of this size is going to be put under a microscope by every relevant regulatory agency in the U.S. In fact, new regulations from Freddie Mac, Fannie Mae, and Sarbanes Oxley Compliance (SOCs) will make the need to make financial and demographic data trackable in order to analyze every material change to the underwriting and valuation process. So, a tightly controlled process which allows Sunnyside Yard’s stakeholders to provide full transparency to all the necessary oversight bodies is imperative. Being able to trace everything that has happened along the way and attribute it to a specific calculation and vendor assumption will be vital to this process. Any vendor working on Sunnyside Yards will need the ability to track and manage every change: see who opened which set of information, how often they accessed the information, who they have shared it with, and what changes were made.
In summary, performing the analyses on a project the scope of Sunnyside Yards is going to require computing power that fully leverages the capabilities afforded by the latest cloud and big data analytics technologies. Spreadsheets and software that’s tied to one computer and internal servers just won’t cut it… it’ll take the next generation of CRE technology.