“Working alongside many of the most innovative owners in the business who see the real estate industry evolving from outdated pen and paper processes, Honest Buildings has become the solution to unlock value through faster project completion on or below budget.” Riggs Kubiak, CEO and Co-Founder
Honest Buildings: a Digital Platform
Honest Building is a leading integrated, data-driven project management and procurement platform built for commercial real estate owners and managers. On its platform it centralizes construction budget data, automates the bidding process, and standardizes reporting. Real estate owners, operators, and managers also rely on the platform to manage its project value through increasing transparency. [i] Throughout its development Honest Building has focused working in partnerships with customers and has since significantly expanded to become a leader in the real estate tech space. The platform has been experiencing rapid growth with project volume increasing at a 500% year-over-year increase in 2017 and also facilitated more than $6.5 billion in transactions for developers, landlords and owners. The platform company reports that customers have experiences an average of 5% reduction in project costs – for some reaching 15% reductions. Moreover, customers save an average of 9 hours per project with up 25% reduction in time spent on administrative tasks. [ii] Honest Buildings captures value through a subscription model in which each customer receives access to their platform where it pools all of the customer’s information and makes it accessible to all participating parties on a universal interactive dashboard.
- Centralized cost tracking
- Unlimited document sharing
- Vendor invoice processing [iii]
- Automated bidding: RFP and RFI process
- Standardized reporting tool
“Honest Buildings is taking owners and managers out of cumbersome manual tracking processes into a collaborative online platform and puts project teams, including senior executives, asset managers and project managers, in a position to make better, more cost and time effective decisions,” says Adam Landsman, VP of Sales
Construction, capital and tenant improvement projects are made up of a variety of evolving factors, making it difficult for owners to monitor costs and overall budget. This requires management to consistently empower their real estate team to diligently monitor and control costs in conditions that are always changing. It is especially tricky for CRE companies to generate a system that makes it easier for them to foresee and incorporate changes such as change orders. Construction projects are relatively complicated and it can take months from when a cost incurred to the time when the accounting team writes the check. It is reported that 60% of capital and construction projects are behind schedule and over budget As such, when there is a lack of continuous real time planning, a lack of communication among parties, and a lack of the appropriate tools needed to track costs in real time, projects typically run over budget and will require additional time for completion. Both instances contribute to lower returns for the investor and the developer/owner. [iv] Most fascinating: According the McKinsey project delays are directly linked to the lack of adoption with technology. [v]
- Resource Tool: Through the constant collection of data Honest Buildings has accumulated rare data, that is relevant to the broader commercial real estate industry. The industry is known for adapting slower to change and it’s lack of technology – this provides the opportunity to pool data from all users and create a network for the industry to subscribe to and source data from. This could also lead to a open source reporting tool.
- AI and Machine Learning: The process of tracking cost overruns and delays produces true business data that never existed before. The variety of data points could enhance machine learning processes and give prediction power to customers. Honest Buildings could as a result offer its data collection and machine learning services to customers who do not have enough data to feed the algorithm.
- Integration: Honest Building platform is currently used to track costs during the construction and tenant fit out period. However, it could be beneficial to understand whether it could extend it product life cycle by adding function that allows asset managers and underwriters to use to analysis discounted cash flows and performance of the real estate investment. Unlike the traditional excel model or Argus program, the Honest Buildings Platform would continue to provide transparency to relevant parties and serve as an interactive DCF model.
- Team Experience: In order to encourage a shift in the commercial real estate mindset it was essential for Kubiak to recruit group from both the technology and the commercial real estate and finance industry including Goldman Sachs, McKinsey & Company, Deutsche Bank, Tishman Speyer, and Compass. In an industry that has been only slowly adapting to change, a ‘fresh pair of eyes’ could provide innovative approaches to value creation and problem solving. This allows Honest Building to not only benefit from experienced real estate professionals, but foremost use innovative processes that have proven themselves in other industries. This application of successful digital tools in the traditional real estate landscape could generate a sustainable competitive advantage.
- Universal usability, making sure all parties can use and will continue to use and update the platform, missing information or data that is not updated will decrease the value and efficiency of the tool. According to Geoffrey Lewis, chief product officer, Honest Buildings is focusing to optimize its usability of the platform and train customers to become comfortable with the tool to mitigate the risk of a decrease in usage by customers. [vi]
- Resistance by experienced construction and developer managers also provides a challenge as some argue that personal contact during the construction period is vital in order to remain in control of all costs and budgets. It is also possible that some management feels uncomfortable using new technologies, as the construction process has slowly adapted to digitalization. This could also lead to an inconsistent use and lack of updates from all sides. In order to benefit from the propositioned efficiency, it is essential that management encourages all teams to use the platform diligently.
- Incompatibility with other systems shortens Honest Buildings product lifecycle and limits its performance to only the construction and fit out period. It would be beneficial to focus to scale the product to integrate with multiple accounting and invoice systems so that it eliminates the necessity of using other systems that would incur effort for its user and drive down activity. [vii]
The development and accumulation of live cost inputs into data is allowing owners to make better decision and ultimately increasing asset value. [viii] Honest Buildings has started to embrace the open sources reporting platform in which it could provide data to its users who are not customers of its management platform. However, it would be interesting to observe whether this new resource platform should be integrated into its management platform or offered separately and more open? It is evident that Honest Building has accumulated a vast amount of current data in an industry that has struggled to collect data, analyze it, and reapply it.
[vi] Interview with Geoffrey Lewis, VP Product, Honest Buildings, April 18 2018