New Andersen Report Focuses
on 'eReal Estate Companies'

Perhaps we should call it e-al estate. By whatever name, though, real estate is undergoing profound changes in the Internet economy. And those changes are the focus of Arthur Andersen's (www.arthurandersen.com) newly released report, "eReal Estate Companies: The Impact of eBusiness and the Internet in the New Economy."

Some of the report's excerpts limn how the real estate industry is being transformed by cyberspace. (Arthur Andersen is selling the full report for US$150.) The report also notes some ways in which the industry is not being transformed. Much has been made of the rapid strides that real estate has made in adapting to the Net. But there are miles to go before we sleep, the report indicates.

In point of fact, the industry as a whole has historically been something of a laggard in embracing new technology. And that has a lot to do with the nature of the business, Andersen's research suggests.

"Some real estate professionals believe that the industry is too relationship-oriented to benefit from the technology-driven Internet," said Carl Berquist, worldwide managing director of Arthur Andersen's Real Estate and Hospitality group. "They don't recognize the impact of enhanced customer access and communication, the savings in business-to-business cost and time, the critical importance of changes in information access and dissemination or the effect of improved work processes and organizational efficiency."

Internet-driven real estate, however, is breathing down our necks, Andersen's research suggests. "It is only a matter of time," the report says, "before property changes hands partially or completely online."

Asserted Daniel Aronson, a manager in Andersen's eBusiness Strategy practice and the director of the research, "Once every few decades, something has such a profound impact on an industry that established leaders are challenged, competition emerges from unprecedented areas and old notions of how value is created are changed. This study demonstrates that e-business has the potential to change who the leading real estate companies are, how they compete, and the basis for creating value in the real estate industry."

Different Sectors, Different Impacts

Here's a look at the report's conclusions on the Internet's impact on various industry segments.

Real Estate Service Companies (RESCs) and Commercial Brokers: This sector's major opportunities, says the report, rest in the fact that "the Internet is opening new opportunities for cooperation and partnership across industry and geographical borders. This means brokers can find more information faster, provide new services to their existing clients, reach new clients, support faster transactions and generate new revenue."

Correspondingly, the Net creates challenges for RESCs and brokers, says the report: "As commercial brokers' access to information becomes less exclusive, their services may be of less value to their clients unless they assume a strong role as advocate and negotiator." Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs): "REOCs and REITs that transact business over the Internet will be able to take advantage of much faster, more efficient ways of purchasing and disposing of property, which will improve portfolio management," the report notes. The challenge for REOCs and REITs? "[They] will have to either develop employees that can perform and enable these technology functions or outsource them, thereby substituting supplier assets for employee assets."

Developers, Homebuilders Also Fact Major Challenges

Developers and Homebuilders: While the aforementioned players have garnered the lion's share of attention from general interest media, developers and homebuilders are also undergoing major changes in the Internet age, Andersen's research indicates.

"The Internet is changing the definition and advantages of being 'local' for developers and homebuilders, creating strong opportunities for growth as Web sites introduce customers to firms outside of their community," says the report. "Companies that once had a hard time securing local materials and subcontractors can now use Internet bidding sites to solicit subcontractors in any geographic location."

As in the rest of the industry, though, here, too, the e-world proves to be an equal-opportunity phenomenon when it comes to doling out challenges.

"The Internet may devalue many structural advantages that have protected developers and homebuilders that have relied on local presence as their competitive advantage," says the Andersen report. "As competition intensifies, developers and homebuilders may find that their customers have a much clearer idea of competitive costs, and they may expect developers and builders to lower the project cost accordingly, even as they demand technology-intensive services, like real-time virtual walk-throughs of homes."

The new report is Andersen's second on the Internet's impact on real estate.