Operational Living Insights: proptech in the living sector

OPERATIONAL LIVING INSIGHTS PODCAST

Welcome to the latest episode of Gowling WLG's list of podcast where we look at the range of topics trending in the legal and commercial landscapes. 

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Danielle Klepping:  Hello, I am Danielle Klepping, a principal associate in the Commercial, IT and Outsourcing team here at Gowling WLG and, as someone with a strong focus on real estate services, I would really like to welcome you to our latest real estate podcast series for the living sectors.

In today's podcast, I am joined by Jocelyn Paulley who is a partner in our Commercial, IT and Outsourcing team and leader of our IT contracts practice.

We will be looking at the some of the legal considerations for operators harnessing the rapidly growing potential of property technology and AI within the living sectors and how clients can prepare for what we expect to see coming down the tracks.

So, thank you for joining me, Jocelyn.

Jocelyn Paulley:  Thank you.

Danielle:  Tech, data prop tech, AI – there is a danger that all of those terms are seen as buzzwords and that they are meaningless. What are we actually talking about here – what are these cases?

Jocelyn:   So, you are right - they are broad, undefined terms of art and people use them to mean slightly different things in different sectors. For our purposes though, I think it is helpful to boil it down to two different aspects of technology that operators of living services will use.

So, firstly like all businesses, these operators will use software in the background in their back office systems - so things like email, storage, finance, invoicing, HR.  In the sector though, there are some core specialist systems like asset management and property management systems, CRMs and ESG reporting. So less exciting and headline grabbing, but absolutely critical for businesses looking to scale and achieve efficiencies, compliance, security and inter-operability between their systems.

So that is the standard corporate back-end.  There is then your much more sexy, exciting customer facing technology which is what we are really seeing living operators increasingly install in their sites. What those solutions look like can range hugely, depending on whether you are looking at student or BTR or senior sectors and they can be all kinds of things, so examples I have seen are things like automated calendars for bookings within spaces in buildings, keyless entry, motion sensors for full detection, environmental controls, lots of communication technologies within communities and apps for third party services within a building, like dog-walking or flower deliveries or gym bookings.

Danielle:  It is really interesting because I certainly see a lot of that in the operational management space, so going to your point about how they differ depending on sector I have definitely seen things like motion sensors in the context of senior living so that you can build that into patient care and I have also seen lots of things like automated calendars in the context of sales. 

I would say the apps are definitely becoming a feature that I am seeing very heavily in that sales context, wanting to make it really easy for purchasers of new build homes for example to pick their extras or their features for their homes, it is really interesting.  And from a personal perspective, having seen my in-laws go through that purchase process recently, it is quite funny seeing the impact on the older generation as well and those that are confident with those apps and those that are less so.  I mean I guess I think there is a shift in the market to offering a lifestyle not just a home and that is really having an impact on technology from my perspective.  Really interested to know what you think is driving that increased uptake of technology solutions by living sector operators more generally. 

Jocelyn:  As you say there will be a number of different factors and some will be strong for different businesses, but if we take those two angles of technology that I was talking about.  As you talked about in your earlier podcast, there is this hugely growing ecosystem that are specialising in the different living sectors.  That will drive businesses in those sectors to really examine their service delivery and consider how they get to scale and be efficient and grow their businesses.  Just like in the 1990s when there was a boom in technology outsourcing and lots of corporates were outsourcing just their internal functions like IT or HR or business processing, printing, catering whatever it might be you, saw the rise of service providers that were very specialist into each of those different areas and that drives the creation and adoption of specialist technology so that those providers can be more efficient and be at scale and price competitive whilst still delivering a quality service, so the technology there becomes a critical tool in their ability to grow in scale just like you would have had maybe professional staff previously. 

Danielle:  Yes.

 

Jocelyn:  The consumer-facing drivers I think are different.  The technology itself is a differentiator as you were saying, if you are offering living as a service the space is one element but then everything else that makes up the living experiences is the other.  The operators can use the technology to encourage people into that space just as much as they can the physical space itself.  I do a lot of work in the retail sector as well and I see a lot of principles from retail being played out here in what the living operators are discovering as their use technology more, so things like need for process to be friction-less, that generational experience that you were just referring to, the hunger for data to understand why customers engage and then fall away, and do not complete a process or targeting a different customer segment and building a business case around that, and also marketing campaigns and I know you are going to look at that in the next podcast.

 

Once you look at that use of space through a retail lens, a lot of that user-facing technology feels very familiar to me.  For the operators, technology can really enhance the whole value proposition of their business because part of the value comes from the property itself as it always has done, but the technology layer can give this new layer of service and experience to customers or tenants, so operators can actually generate value for using well chosen and well operated technology.

And just finally in terms of increased uptake, there is a really interesting statutory angle to this as well. As you will well know with the requirement for the golden thread for data to come with the building as part of that legal obligation is going to drive the industry to think much more about the data with the building and to build solutions that accommodate that and make it relatively easy to fulfil the statutory obligations I think it just gets the whole industry thinking from another angle. 

Danielle:  Yes I think that is really accurate because certainly when I have been involved in looking at the occupations of requirements around the buildings safety legislation.  I see a lot of property technology solutions emerging in that space because of that requirement around the golden thread and also because of the requirement for things like safety cases, so that has prompted different types of property technology as well.

All of that certainly has a lot of parallels with themes that I see in the living sectors.  I see very much a need and lots of discussion around this idea of building and operating at scale and we know there has obviously been a cost of living crisis, costs has gone up, there is a need to combat some of those growing operational costs as well.  I resonate with that and I resonate with the value add as well.

I definitely think that customer facing drivers really play into the crunch points in terms of selling those actual apartment or houses, I can see how it is all coming together.  Are you seeing any challenges or difficulties or is this as straightforward as other sectors that have adopted technology at pace before?

Jocelyn: I think there are some challenges.  Technology issues are quite familiar but as a sector, the real estate sector, so even bigger than living has not traditionally invested significantly in technology and certainly not customer or tenant facing technologies so I am seeing some issues come to the fore.  Actually some of those come from that relative immaturity of the sector as a procurer of technology?  They are not attuned to some issues, where if I compare to the retail sector, they are well-known and well-trod, like cyber-security given what has happened recently to some of the retailers, data protection, business continuity – if a provider goes insolvent how are you going to carry on giving that service to your customers.  Having more flexible contracts.  Allow for changes in volumes and metrics, thinking about what happens on exit and we have to get your data back and actually just engaging with software as a service or SAS and understanding both the benefits and limitations of those systems because on a one-to-many service structure you cannot very easily bespoke what you want and that is important to understand on the way into those discussions with those suppliers.

Equally, as well as the procurement angle, the operators will still have to think about their internal skills and resource.  You still need an internal IT function with the skills to manage this - often vast array of third party suppliers and even if those suppliers are largely cloud and SAS, so you are not managing your own hardware, they will still have to be architected in a way that all the systems talk to each other so data can flow across.  There is internal investment required there as well.  It is not just external procurement.

And then actually to add to that difficultly, we are seeing it the other way round as well?  That a lot of these property technology solution providers - because they are niche and specialist and we have talked about the growth.  They are young. Companies, so they themselves are immature.  That means they do not have established processes, so when you are asking questions they cannot explain how things work as well.  They are just less clear on what the red lines are on what they can and cannot do.  The nature of them being young businesses itself presents that business continuity risk, and they struggle with some of the compliance issues in their contracts which is less well-structured and presented.

Danielle:  Makes a challenge for you, I am sure.

Jocelyn:  On both sides exactly. 

I do think there are some much bigger picture things that have not played out yet because this is relatively in its infancy.  Thinking forward about technology refreshes from a hardware point of view - note technology hardware lasts much longer than 5-7 years, and whilst that is an eon in technology world, in a property sense that is the fastest cycle of any other M&E within a building. Landlords and operators have to factor that into their cost profiles and management structures. 

Data management. A whole new topic.  Technology, whether its online or implemented in real world would generate really large amounts of data. Operators need clear objectives and a plan - what data will they collect and what they want to do with it and then you can build up your strategy around cost and procurement, your selection of solutions.  Think about data classification is really important in their systems, retention and then some legal compliance around data protection and marketing.

Danielle:  I mean that is an area we have obviously crossed over on because traditionally it seemed like quite a simple concept and the management agreement space of you are getting these operators to come in and provide the services and their processing, there is not much personal data was kind of where we were all at and then we have seen this sort of, I would say transformation a bit in that sector of just - actually there is a lot more data here than we realised and that data is going to grow with use of property technology and that is going to lead to a real need to check those parts of the agreements and make sure they are accurate.

Jocelyn:  Exactly as you say it is that experience on both sides of that relationship becoming alive to the risk and opportunity in working it out to deal with it in the contract. 

And then finally in terms of challenges looking further forward, is building on data management then in dropability in data standards because once you have collected data, the chances are at some point you are going to need to share or transfer or let someone else interact with it in some way, for some purpose.  They could be your service providers, insurers, investors, regulators, manufacturers, all kinds of people depending on what you are doing and whilst there are absolutely data standards in real estate, they are still very fragmented as a landscape and not hugely well understood, so if you think about it compared to telecoms or banking, there are very well known industry wide standards to let those industries operate beyond companies, beyond geographical restrictions and even further, so seeing that would give the industry its next boost.

Danielle:  It definitely feels like we are seeing lots of activity in that space.  There is lots obviously for us to get our teeth into, in terms of – you mentioned principles from the retail sector being played out in the living sectors earlier. With that in mind, do you have any top tips for living sector operators currently assessing their existing technology solutions and/or planning to invest in new ones?

Jocelyn: Yes.  If I take a few sort of big, high-level points.  Firstly – structural. If you are planning to embed technology within a building, if that technology is consumer facing - understand whether you as an operator are contractually on the hook for provision of that service or whether you make it available within the building, but before anyone can consume it, they have to  contract directly with the supplier of that service.  It is obviously really important to understand your contractual obligations and your liability.

Secondly think about duration. Tech changes much much faster than buildings. It has to keep up with how people want to engage with technology, what they want to do with it and increasingly what they trust the technology to do as well. So contracts need to be shorter in duration, have clear renewal mechanisms, ways to terminate and get out and clear change control to manage that change.

Danielle:  And that is really interesting is it not because in the management and operations space, you tend to find that those contracts are long-term?  So I can definitely see the need to take a step and think about that in this context.

Jocelyn: There is quite a tension there, yes.

So thirdly coming back to the data again. The technology is going to result in data, so as I mentioned before, you need to have a clear roadmap as to what you are using and why you are using it, because it then links to how long you keep it, who accesses it and the compliance side for personal data and then fourthly – marketing.

Retailers have spent a long time understsanding ecomm, and then working out they combine that with their bricks and mortar offerings to get the best from both worlds.  Ultimately looking to learn as much as possible about their consumers and their customers as a living operators will want to look to that sector to try to learn from it and it is complex.  There is a whole mishmash of legal issues there which I know we talk about quite regularly, looking at data protection, the legal rules about marketing and consents, advertising standards and consumer law.  So it is not straightforward.

Danielle: No.  Wise words as always. Finally, we have not talked about  AI and I guess, the thing that jumps out in my mind when I think of AI is, I went to a conference by the Association of Residential Managing Agents – they are now called the Property Institute, a few years ago and they had this brilliant presentation which was actually by AI and they did not announce that until the end and I guess that was my first moment of 'wow, this is really impressive'.  I would love to hear a bit more about what you are seeing in the living sector in terms of living operations using AI and whether you have come across that?

Jocelyn: In relatively small ways, so far - yes. Things like chatbots on websites to just triage queries and issues.  Producing visuals before buildings are built, to marketing, fly-throughs, VR.  Decision making tools is an interesting one, to help with site selection and the composition of the types of properties to put on that site and also, bit more futuristic – prediction of rent arrears.  Looking at someone's payment history and obviously lots of alarm bells ring for lawyers there. 

I think part of the challenge is to deploy a lot of the AI solutions successfully.  Two issues that I have talked about before have to be in place first – the data management and data standards?  Think about it.  You cannot have an AI answering your customer's questions unless you have policies in place that it can look back and refer to when it has been trained sufficiently on those policies and it will also need to look at your CRM to establish who the customer is and what building they are in and what rights they have.

Ultimately, yes I think AI will be used a lot more than it is being used today and this is the whole AI sector debate – are we in the trough of disappointment on that curve, or is it just that we have not yet – because it is still so new – fully appreciated all that it can do.  we thought it would do more faster, but actually have we under-estimated what it can do but over-estimated how far/quickly we will get there.

Danielle: It sounds like there is lots of interesting times ahead.  I mean I am really excited to see how it all works in this space and what the impact of all of this will be.  That is all we have time for today, so a big thank you to our listeners for joining us and we hope that you will all join us again for the next and final podcast of this series where we look at advertising and marketing in the living sectors. 

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