Revolutionizing the Industry: The Benefits of AI for Commercial Real Estate Investors and Developers

Technology is a force multiplier in economics. It allows economic agents to produce more output with less input, lowering the cost of that output. We see the effects of better technology in that the vast majority of the material wealth and comfort we know in the 21st century has all come about in just that last century. Fully 99.9% of the economic value we possess and utilize in our everyday lives has been invented in just the last century, if not the last two.

Only Recently Does Technology Change Fast Enough To Be Noticed

Technology has only recently come into its own as a thing unto itself; prior to its ability to compound at rates that make `it` visible, technology presented itself in disparate, discrete packets, for specific purposes. Agriculture came into being as a technology superior to hunting and gathering. The wheel enabled armies to transmit force over a greater distance. Metal alloys ensured that force was deadlier than before. But today many new technologies can be applied to many other new technologies, enhancing the effects of more, on more.

The effects of technology on economics cannot be overstated. We have prospered at such formerly incomprehensible rates, we tend to take it for granted. A century ago, nobody got together around a table and planned out how they were going to increase the US` caloric crop yield by 100x, using only 25% of the land and 1% of the farmers, in the next century. Yet that`s precisely what has occurred, in the absence of any such plan. And, it is what is most likely to continue, and accelerate. To see why let`s examine why economies grow.

How Economies Grow

Economies grow because the individual economic agents within them have a built-in, self-contained positive mathematical expectation, and, critically, are empowered to exchange freely with other agents. Each individual in an economy seeks to gain greater value than expended. This creates a mathematical aggregate that grows, with periodic corrections. It enables markets to emerge where participants can trade to suit their preferences. As technology enables the creation of greater output with less input, this process accelerates across the entire economy, compounding upon prior compounding and creating huge excesses of economic value.

This is precisely where we find ourselves today, from a technological point of view. Human know-how has positively exploded in the last two centuries and continues to compound its acceleration, with the most notable contribution of late being Artificial Intelligence.

What Is Meta-Technology? And How Does It Help Us Create Value?

AI can best be thought of as a meta-technology. A meta-technology is one that enhances the functioning of other forms of technology. Other examples of meta-technologies include the internet, the mobile phone and the automobile. These were not created to serve as a substrate for other technologies, by design. They emerged out of the complex interactions of the individual agents within the economy.

The Rate At Which Knowledge Doubles vs Knowledge Half Life

It can be instructive to think about information flow in terms of the value of accumulated knowledge and know-how. One way of measuring this, pioneered by Buckminster Fuller, has been to calculate, back-of-napkin style, how quickly total knowledge is doubling, but this yields spectacularly unusable data that tell us magnitude and direction, but little else. By 1982, Fuller calculated that knowledge was doubling about every year. By 2020, this was every 12 hours.

Knowledge half-life, by contrast, a concept first elucidated by Fritz Machlup, former president of the International Economic Association, calculates the time, given current considerations, for half the available information to become obsolete, or superseded by new information. The upshot of this method lies in what it plainly reveals: that not only is valuable information increasing in quantity it is sticking around for longer in the value window.

Fear Of Technology Is Historically Costly

Not understanding that technology is a force multiplier has cost societies immeasurably. In the early 19th century, English Luddites set fire to textile mills, in protest of the spinning Jenny, a technology that automated the manufacture of yarn from textile fibers, which they believed was certain to impoverish society. The exact opposite has proved to be the case. Machines can do the work better, faster, and the people whose work they replaced can find new work. Once they do that, society is richer, not poorer, because the value of their former work is still being completed. This example illustrates the cost to a small group of misreading economics; but a similar misread cost a much larger group much, much more.

How The Cotton Gin Backfired

In 1794, Eli Whitney received a patent for his short-staple cotton gin, an invention that increased the output of seeded cotton per unit of labor expended. He calculated that the device would replace slaves, and in doing so would hasten an end to the institution itself. Due to his misunderstanding, slavery itself along with the value of each slave absolutely exploded following his invention. This was because Whitney had inadvertently made slaves exponentially more valuable to plantation owners, to levels they would fight and die to protect. Now, the amount of labor required to produce a pound of cotton was less, not more. So why not plant that larger field this spring? This was Whitney`s innocent, yet still costly miscalculation.

The Cobra Effect

When the British colonized India, they decided to offer a bounty on cobras to help reduce the cobra population. They soon noticed an increased flow of freshly killed cobras being offered to collect the bounty. People had begun farming cobras to collect them. The moral: people follow their incentives. Ignoring this fact leads to unintended consequences.

AI And The Modern Economy

Today, we find ourselves at the crossroads of a truly massive technological leap. Artificial Intelligence has finally reached a point where it can do significantly more than identify crosswalks or buses from a lineup of images. We maintain the value of the technologies invented up until now, but using AI can now increase the ratio of output to input. That means we get more value with less effort. And it`s going to be largely retroactive, meaning it can be applied to existing assets and technologies for a more rapid effect. For example, imagine the value added globally by the use of spreadsheets. Now imagine eliminating the need for a human to enter anything into a spreadsheet, yet they become better, more accurate and simpler for humans to use. That`s the value differential we can expect from AI.

AI Will Force CRE To Level Up

We`ve seen the parlor trick where someone tries to fold a piece of paper in half as many times as possible, and can`t do so more than seven times (Mythbusters notwithstanding), but theoretically, if we could continue folding it, it would only take 37 folds before it reached the moon. The magnitude of each fold gets so large that the 37th fold of a piece of paper`s size is half the distance to the moon. That`s an apt analogy to the way knowledge compounds in society, and this upcoming iteration of knowledge doubling is likely to make this point with an exclamation. After reviewing the landscape, we believe the following are the top 5 ways AI will benefit CRE in the foreseeable future.

The Top 5 AI Applications In CRE 2023

1. Automate Market Research

   and analysis of commercial real estate data: If there is one thing AI does extremely well, it is to quickly analyze huge volumes of data to extract exploitable patterns. Identifying nascent trends and potential opportunities ahead of competitors could give early adopters a distinct advantage.

2. Create Virtual 3-Dimensional Tours

   of commercial properties for use in sales or marketing collateral: If nothing sells like video, then nothing creates video like AI. Video quality developed by AI today is very high, and with the quickly-compounding improvements AI is able to generate, these will likely surpass human-created videos in short order. At the intended pricepoint, there is no human alternative even close in ability.

3. Automate Customer Service:

   AI is already being used for customer service in other industries, but could be adapted specifically to the needs of CRE tenants and landlords, such as for self-populating FAQs and informative answers conveyed in video or any other format, and created instantly.

4. Automate Property Inspections:

   landlords can direct AI to automatically carry out property inspections that inform them of maintenance items before they can bloom into problems, document, account for and schedule the repairs, and track benefits of use in real time.

5. Automate Tenant Management:

   AI can manage lease agreements, suggest advantageous alterations, collect payments and populate spreadsheets, all automatically.

Artificial intelligence

has turned a corner and is headed very quickly for a general intelligence level that is economically viable. This would effectively make everyone much smarter because it could fill in the gaps between baseline skill sets and time schedules. Is there a better portfolio allocation you should move toward this month? AI will know. And those with the most experience using the tools will likely possess a distinct advantage over later adopters. This is one of those rare times in history where we are truly at the precipice of a very sizable gain in economic value and can see it coming with the benefit of history. Will you seize the opportunity?