“You Can’t Handle the Truth (about Data)!” with Chris Milano

SKIP AHEAD TO:

• The Evolution of Technological Approaches
• Crowdsourcing Data within the Lending Industry
• Is CRE an Asset Class?
• Applying a Tech-First Approach to CRE
• Challenges and Advantages of Data
• What Lies Ahead?

In the final episode of our Unlocking CRE Data Series with CompStak, Mark and Michael sit down with Chris Milano of Capital One to explore what’s next for the industry.

“You want answers?! You can’t handle the truth!” 

If you haven’t seen A Few Good Men, then you’ve at least been exposed to a meme or two about it. Arguments about whether or not it’s an iconic film notwithstanding, you’re probably wondering what in the world this has to do with a podcast miniseries about data… We’re getting there.

Throughout this series, we’ve sat down with experts in their fields to talk through data from soup to nuts. What did the data landscape look like, even just a decade ago? How are people deploying data on the job and how is or isn’t that changing the way we work and do deals? In the final episode, we were joined by Chris Milano of Capital One and had planned to discuss the final frontier for data — and how it intersects with technology — but this conversation went sideways. In the best way. 

Sure, we talked about CRE, data, and the tools we use to get the job done…but the central theme of this conversation was a return to our understanding of the truth – and how that might be more subjective than we’d like to think (and even more so when we apply data to it). 

While unexpected, it’s fitting that we ultimately landed here. Data in a very real sense is one of the only ways we have to remove subjectivity from decision-making. Over time, it has become heavily commoditized as we’ve created and consumed more of it than ever. It’s no longer negotiable to embrace a data-driven mindset in CRE (or elsewhere), but the stakes are higher than ever. Now the discourse has shifted from necessity to nuance. From who’s doing it? To who’s doing it best? 

Who better to tell us the “truth” about data in commercial real estate than…a few good men? 

Listen to the full episode here, or keep reading for a quick recap of the conversation.

The Evolution of Technological Approaches

Chris reflects on the transformative journey of analytical approaches, highlighting the shift towards data-driven analysis and the strategic utilization of data to gain deeper insights into transaction risks. The primary focus lies on enhancing efficiency and harnessing technology to elevate the risk assessment process.

“I think the biggest thing that I’ve seen is getting very smart about our data and how we use it to analyze the risk in a transaction.”

As a provider of data, CompStak has witnessed a parallel evolution in the mindset of their financial clients towards data. 

Michael notes, “we’ve found that our clients have become more open to new approaches and to new datasets, and to getting a little more granular in their approach. Now there seems to be a stronger interest in really digging deep into those assets. And obviously, we hope that we’ve helped, you know, create that trend, but also support that trend. 

Chris has also noticed a shift in how people approach data. In the past, people liked to be “boots on the ground” to go see and walk through a property. The data was just a tool to validate what they were seeing with their own eyes. That’s changed quite a bit in present day: “Alternative data may get you further than you otherwise would be with just what was traditional before.” 

Crowdsourcing Data within the Lending Industry

Michael recollects the skepticism surrounding crowdsourced data when CompStak was founded 12 years ago. He vividly recalls people frequently questioning the reliability of such data. Michael’s strategy to establish the credibility of CompStak’s data involved presenting information about deals that were already known to these skeptics. As Michael puts it, “The proof of the pudding lay in showing them data about deals they already possessed the rent roll for.”

Chris agrees, stating, “I don’t have this skepticism around crowdsourced data. I’ve seen it in real life across a bunch of applications. So I don’t think there’s any reason it wouldn’t work in commercial real estate…I think the more eyes that are on the crowdsourced data, the more accurate it becomes. And then the longer it’s out there, the more comfortable people become.”

Is CRE an Asset Class?

Each segment walks and talks differently, as evidenced today by varying levels of capital and performance. It’s a dynamic landscape influenced by broader economic trends. Chris approaches CRE as a collection of subsegments, recognizing that a one-size-fits-all approach does not apply to commercial real estate.

Michael notes that CompStak caters to clients who view the CRE industry discreetly, offering highly granular data that empowers users to analyze each asset type. However, the relevance of this granularity varies based on the client’s specific needs and objectives.

Applying a Tech-First Approach to CRE

“Getting good, clean, well organized, detailed data is what we’re interested in,” Chris notes. 

Michael underscores that the latest trend among CompStak’s client base revolves around data science, with some clients building dedicated teams to make sense of their data. The CRE industry professionals are eager for new data sources, recognizing that the real value lies in the data itself, while technology becomes increasingly commoditized. “Some of our clients are building out meaningful data science teams internally, where they’re trying to make sense of their own data. Others may want to, you know, leverage API’s with derivatives of our data and put it into models.”

The data that powers future technology will speak volumes about how good (or bad) that new technology is. Financial institutions can meaningfully differentiate themselves in their underwriting work and portfolio management by harnessing the data and looking at some of the out-of-the-box data.

Challenges and Advantages of Data

A decade ago, data availability in the industry was markedly different. The accessibility to data providers, offering information on new developments, market supply, migration patterns, and more, has revolutionized how businesses operate. Physical presence in the market is no longer a prerequisite for understanding it; data serves as the bridge.

With the vast amount of data readily available, the challenge now is deciphering which data is truly impactful in the decision-making process. Chris notes, “it’s more around figuring out the data that’s going to be impactful to your decision. I think we’ve advanced so far that getting your hands on data is not a huge concern. For me, it’s more about teasing out what data is going to be that leading indicator for you.”

However, even though data is undeniably essential, economic factors can sometimes overshadow its importance, particularly when companies are cost-cutting. This poses a challenge for data providers, as Michael explains, “During periods of economic uncertainty, companies, even those with declining stock prices, often prioritize cost reduction over investing in data.”

What Lies Ahead?

For Chris, there isn’t so much of a “data wishlist” anymore as the technology has improved dramatically within the past 10 years. The focus now shifts towards identifying the data and insights that will drive businesses forward. 

“We are at a spot where we have a lot of the technology, we have the ability at our fingertips, it’s just deriving those relationships from the data that we believe will prove meaningful for us. I think that’s kind of like the special sauce that I’d be looking for.”