Proptech: The beginning

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Proptech, as in “property technology”, is newer than fintech, biotech, agritech, …   Some people like to point to some big numbers: US$500m in venture capital invested since 2013 or companies with a market value of over $1b.

At the recent RICS Summit Series, proptech was a big deal.  The basic idea focuses on machine learning, improved sensors and better data, with help from experienced people to interpret all of it, to help businesses make better decisions.  Eventually, opportunities to do things not done now will emerge as has happened with previous innovations.  But, what is it?  Really?

It is a battle between the arrogant ignorance of youth and the know-it-all-seen-it-all inertia of the ancients (and of youth who think that the secret to success is to mimic the ancients).  Developers who manipulate big data in real time are promising amazing things.  But, as was stated at the conference, more senior people sometimes feel they want to slap the newbies.  Continue reading

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Investing in Real Estate

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Lots of people invest in real estate and lots of other people avoid investing in real estate without fully understanding its risk and return profiles.  Based on work co-published by REALPAC and the Pension Real Estate Association (PREA) which was presented at a recent conference in Toronto, Greg MacKinnon noted how easily investing in commercial real estate companies can be compared with investing in stocks and bonds.  Unpacking this work reveals informative details.

Lots of people invest in real estate, in the sense of owning (jointly with a bank) their home.  This is risky.  Rather than own one building used for residential purposes only, it would be better to own shares in many buildings: in other words, to buy REITs or pension funds which invest in office buildings or industrial properties or ….  In addition to making the investment more liquid, it lets professional managers make the day to day decisions.  Continue reading

Are graduates ready?

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A recent Conference Board report noted a difference in perception between what students think that they learned at university and what professors think that the students learned.  A recent report in the US also found a difference in opinion between students and employers concerning the job readiness of graduates.

Are they ready?  I think that they know a lot.  I also know that their first six months on any new job is intense because of how much needs to be learned quickly.

A pundit on Fox News shows how complicated this issue is, by suggesting that graduates should learn “how to balance a check book”; the interviewer noted how that advice was outdated.  More generally, it can seem as if the technology is changing so fast that any company which relies on anything in an existing textbook is not a company you want to work for; they are about to become roadkill.

At this time of year, students come to me for advice: “I went to (some) classes.  I wrote good-enough answers to questions I did not understand.  What did I learn?”  Their parents notice the changes.  Since it may be hard to spell out in detail during a job interview, let me try.  Continue reading

The price is unfair!

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During the last two years, this phrase has been shouted in anger many times by many house buyers.  Their financial frustration is combined with a general unease about the bad ethical practices demonstrated by some real estate agents and some Realtors ®  (including a few who were convicted of various offences). So, the Ontario Real Estate Association is looking for your input into revising the Real Estate and Business Brokers Act .

You might think that the simplest part would be to improve the pricing process.   Unfortunately, OREA asks Continue reading

Math, business and learning

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At this time of year, our first students are about one month into their required math class: enough time to learn something, enough time to wonder whether it will be useful and to ask “is this course an arbitrary barrier to my career?”.  The purpose of this blog posting is to say “Yes, math class teaches important ideas” and “Listen carefully to discover the really useful stuff”.

It may help to start by making some silly questions disappear.  If you think that the mathematics used in advanced classes or on the job is about entering numbers into a spreadsheet and making sure that the answer is calculated correctly, then you misunderstand the value added of a job.  If you think that calculus is about fancy symbols that were developed a couple of hundred years ago for use by scientists (but not people in business) then you misunderstand the questions that business people need to answer.

This table lists a couple of familiar subjects, the contents of such courses and why there are costs to not understanding them.

Subject Concepts Misunderstanding a concept opens the door to …
Arithmetic 1, 2, 3, -100, 0, …, +, -, *, /, ( ), … Creative accounting, misleading consulting reports with excessive jargon , poor number sense
Algebra x, y, =, y= mx+ b, α, π, … Being unable to understand trade offs or system-based thinking, confusing anecdotes for logic, unable to recognize equivalencies
Calculus slope, curvature, change, functions, optimization (with and without constraints), … “Model risk”, being unprepared when market conditions change, confusing marginal costs and fixed costs

Technology makes computation incredibly easy now if you know what needs to be computed.

Good math classes develop problem solving skills.  Accounting classes explore particular examples of accounting problems and marketing classes explore examples of problems faced by marketers.  But, like a magician pulling a rabbit out of a hat, the solution to many of these problems is as obvious as if the hat had two floppy ears sticking out.

In upper year classes, we teach net present value (NPV) or sensitivity analysis.  Students think that the class teaches how to make investment decisions and that is not completely wrong: they are taught how to show whether a project’s financial sensitivity coefficient is more or less than 5.  A better student would recognize that NPV is a type of function with inputs and an output, and that sensitivity analysis is an example of calculus (which quants in finance disguise with jargon such as “delta”, “vega” and “rho”).  With math class providing a solid foundation, upper year classes can spend less time on boring review and more time on advanced ideas.

A university education is about obtaining a more general perspective so that, without being taught directly, you can see that the problem of tipping restaurant staff is related to the problem of giving incentives to corporate executives.  Or, you can use your perspective to extend the textbook examples to solve a type of problem which is too new to be in any textbook: somebody will, why not you?

The goal of learning is to develop a level of comfort with the concepts, not the ability to calculate the answer to a known formula using known inputs.  A student who only learns to calculate an answer can be tempted to torture a formula and to change planning assumptions to produce the “right” answer (such as demonstrating profit is high by ignoring certain costs).  A better student would know that the right decision for a business is not yet known and would know when to ask hard questions of any answer.

There are many worthy articles on why it is good for your soul to study this or that subject but a blog posting on the Scientific American website argues: math is fun.  By playing with math tools, you will realize the value of having learned time tables or calculus.  When used to them, they complement the application of creativity.  Stimulated by the real world, you can play with puzzles and patterns that nobody else has noticed.  With the added clarity, you can proactively provide solutions before people realize that they have a problem.  It sounds like good math leads to a happy customer.

PA

Nice Guys and Gals Don’t Finish Last

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In mid-November, a team of six undergraduate students from the University of Guelph went to New York City and won second place in the 9th Annual Cornell International Real Estate Case Competition.  The team consisted of Lauren Chan, Hillary Hetherington, Sam Ives, Stefanie Kaminski, Krishna Movva and Sasha Somjen.

This competition included a record number of universities, from eight countries and four continents.  Several of the teams had to win regional contests to be invited to compete in New York City.  All of the finalists were “heavy hitters”. Continue reading

Cognitive buildings will disrupt

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A recent visit by Angela Choi (Deloitte) to my market analysis class provoked me to reconsider the ways in which a building could add value to businesses using that building.  Old style thinking emphasized that a business needs to locate somewhere and that real estate expenses were best if lowered.  That made sense when a building was basically a box.  Innovations in information technology has some people talking about “cognitive buildings” and people like Angela talking about disruption in the real estate industry.

Continue reading

Trends and Turning Points

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The media coverage of price trends in Toronto’s residential housing market has been confusing.  Most people look at recent reports and conclude that past trends have stopped or, at least, paused.  Some people point to examples where old patterns of behaviour (i.e. paying more than list price or selling in a couple of days) reappear and reach a different conclusion.  These conflicting stories illustrate how difficult it can be to analyse market conditions when there is no simple trend.

Turning points are challenging because a different logic of analysis is needed.  I teach classes on the simple analytics of trends.  Since there is general agreement on the direction, that analysis focuses on measurement and estimating precisely.

At a turning point, the general agreement falls apart.  Illiquidity in real estate markets means Continue reading