by Tama Huang, Executive Partner, NOI Strategies
Somewhere along the way over the last couple of years, while no one was looking, it seems that someone took the liberty of anointing property management systems with the moniker ‘ERP’. Wishful thinking? Perhaps. Synonymous? Not exactly.
When one thinks of ERP, or Enterprise Resource Planning, some powerful words come to mind: All-encompassing, global, open, expansive, and yes, expensive.
By design, ERPs consolidate a variety of otherwise disparate systems and information into a common, highly integrated operating environment. ERP systems deliver big gains by helping to grow revenue, increase productivity, improve efficiency throughout the enterprise and better manage costs. Out of the box, they are localized to virtually every language, currency and global standard. They tie seamlessly with advanced collaboration, business intelligence and analytics tools, and with an ERP’s unified view of enterprise-wide information, executives can ultimately make better decisions about corporate objectives and strategies.
Sounds great, right? Unfortunately, what works so nicely for the rest of the business world doesn’t necessarily work for real estate.
Real Estate ERP vs. Mainstream ERP
Most mainstream ERPs such as those provided by Oracle, SAP, and Microsoft are designed for medium to large single entity companies with one or a few large G/Ls. These systems, and most accounting systems for that matter, are not designed for dozens or even hundreds of independent G/Ls that need to report on a fully or partially consolidated basis.
In addition to their multi-entity structure, commercial real estate companies generate a relatively low volume of highly complex transactions that mainstream ERPs simply can’t handle — no matter how powerful they might be otherwise. Hence the emergence of the property management system back in the 1970’s.
As an example, let’s take a simple daily task such as the posting of a stack of rent payments. With a mainstream ERP, you would have to login, select the appropriate entity (a/k/a property or building), select the function of posting payments, and then post your payment. For the next rent check, you would have to exit out of that entity and enter into another entity, select the function of posting payments, and then post your rent. Now repeat this for every rent check. Not very efficient, is it?
The fundamental difference of a property management system, or real estate ERP, is that it allows you to cross entities within a function (such as posting rent) so that you don’t have to jump in and out of entities to do your work. You simply select the function of posting rents and apply them across entities at will. Every property has its own set of books, but those books can be consolidated into whatever levels of reporting are necessary. This architectural difference is the primary reason that mainstream ERPs are limited to corporate management within real estate operations.
Meanwhile, even though property management systems have reliably tackled the more challenging property accounting functions for the last few decades, they lack the corporate horsepower, functionality, integration and horizontal capability offered by mainstream ERPs. Many property management systems, no matter how nice they may appear, are still derivatives of older, proprietary technologies. They often lack the international language, local methods and currency prerequisites for the global markets into which target customers are rapidly expanding. User interfaces are often cumbersome and outdated. Data captured by these systems is unstructured and can be difficult to access.
It is just a matter of time before mainstream ERPs adopt the functionality of real estate ERPs, or vice versa? Who will get there first is anyone’s guess.
There have been several failed attempts to displace property management functions with mainstream ERPs. Tens of millions of dollars were spent trying to overcome the fundamental architectural differences that separate real estate ERP from mainstream ERP. These campaigns certainly proved that the appetite for ERP capability is there. But they also demonstrated that mainstream ERPs have a long way to go before they can efficiently handle the difficulties of the real estate model.
Many larger real estate companies have figured out how to leverage the best of both worlds now by implementing mainstream ERP for corporate operations and real estate ERP for property operations. This approach sounds logical enough, but it isn’t without its challenges and high costs. This inevitably translates into extensive and intensive integration efforts as the property management functionality has to be incorporated into the overall ERP solution.
What we are seeing is that mainstream ERP providers are starting to reach down into the industry by providing the real estate specific solutions. On the flip side, the same is true for real estate specific providers such as Yardi Systems, RealPage, and MRI Software, who are quickly blurring the lines between traditional property management systems and Mainstream ERP. For example, Yardi’s business intelligence and deal flow tools are highly integral to their core financial management modules. These solutions are increasingly becoming part-and-parcel of the applications you utilize every day, if not every hour, such as Outlook and Sharepoint. Slowly but surely, these vertical platforms are earning their stripes and reaching across to become ERP platforms.
To ERP or Not to ERP?
There is no one system that is or ever will be the be-all, end-all for commercial real estate. It should also be noted that not every problem is one that can be solved by technology. And what might be a strong fit for one real estate company may be a poor fit for another. It is all very personal and highly dependent on the unique cultural currents, business demands, and technology topographies of each real estate company.
Nonetheless, you can bet that the real estate ERP providers have every intent to be your single stop shop for every one of your business process and technology requirements, and mainstream ERP providers are going to look to ‘verticalize’ their underlying platforms to attract a very lucrative and increasingly global real estate industry.
Can ERP providers keep pace with industry demands? When it comes to technology, supply and demand are in a perpetual game of leap frog. But be careful what you ask for. ERP providers are pumping out product at a faster pace than ever before. Perhaps the better question is whether or not the industry can keep pace with the ERP providers? As mainstream ERP providers deepen their industry capabilities and real estate ERP solutions broaden their reach, technology solutions are becoming more complex, more versatile, and more attractive. While there are no silver bullets out there, yet, this also means that for many organizations, it may be time to take a fresh look the available options out there.