Digital opportunities: CRE trends for 2024 and beyond

October 27, 2023

Artificial intelligence, third-party cyberattacks and payments innovations are reshaping commercial real estate.

After a prolonged period of prosperity, commercial real estate (CRE) faces strong headwinds entering 2024, prompted by market stress, maturing loans and interest rates that are redefining values as well as investor expectations.

With challenges and uncertainty come discoveries and opportunities to build efficiencies that allow firms to make use of the favorable conditions that present in every cycle.

Consensus among 2023 U.S. Bank Commercial Real Estate Conference participants was the economic tide may turn by the end of 2024 into 2025. It could open the door to more lending and space to invest capital which has been parked on the sidelines.

“Tighter financial conditions, combined with the likelihood that the Fed’s going to need to remain restrictive for the foreseeable future, could choke growth more and more as we go into next year,” says Matt Schoeppner, Vice President and Senior Economist at U.S. Bank.

Treasury innovations are driving payments evolution

Uncertainty compels CRE leaders to play the long game. It incentivizes companies to get creative, study the market more thoroughly to offer clients greater advice and close more challenging deals across all asset classes.

More businesses say receiving money quickly has never been more important and they’re willing to re-negotiate payment terms to better manage cashflow. Industries like CRE can invest in innovations and best practices to help them navigate the now.

Optimizing payables and leveraging digital transformation to simplify processes can better serve suppliers, vendors and tenants while increasing profitability.

Emerging technologies like artificial intelligence are accelerating the evolution in the payments space while raising concerns about cybersecurity and the cost of not implementing technology to protect against relentless threats.

What are CRE leaders watching?

The intersection of banking, technology and market expectations is complex as payments become faster, more embedded and a greater strategic aspect of CRE organizations. Where and when to invest resources is inspiring industry leaders to lean into more innovation and transformation.

What drives innovation as the threat landscape intensifies? What motivates jettisoning paper for electronic payments?

Here are four trends on which industry leaders are focusing:

1. Artificial intelligence can produce true insights

Artificial intelligence (AI) has gone mainstream, creating opportunities to harness its power to improve business operations and customer service, but opening the door to bad actors exploiting it for nefarious purposes. AI can produce true insights for developers to better understand their customers. AI absorbs and leverages more data than we are capable of, with less waste, to deliver what markets want instead of speculating about what they need.

That multifamily project you want to construct at a certain price on a specific site might prove to be undervalued or misguided. AI can precisely distill information to identify how many units to build and the highest and best use, helping commercial developers market directly to clients with more consumer focus.

Operationally, AI can gain faster insights by:

  • Automating tasks.
  • Identifying lease syntax and vetting tenant data.
  • Standardizing budget data.
  • Resolving customer service tickets.

Because that powerful intel cuts both ways, it is keeping cybersecurity leaders up at night.

2. Outpacing sophisticated AI threats

Sophisticated extortionists are using AI to social engineer phishing emails that alter banking information and seize unauthorized payments from vulnerable servers. They are developing new technologies like deepfake audio to mimic voices and trick employees into believing they’re talking to someone in a position of authority.

Some even follow ransomware-as-a-service models in which developers create, maintain and update malware for attacks – brashly encouraging victims to contact their “sales department” to prevent disclosure.

On average, third-party attacks interrupt business operations for two to three weeks. Forensic investigations into network exposures and vulnerabilities can take up to two months and prove costly.

Outpacing these threats takes agility and best practices that:

  • Consider third parties in addition to your own assets for prevention and reacting to vulnerabilities.
  • Inventory data outside of your network when making security decisions.
  • Develop a response playbook that includes third parties.
  • Patch and update software applications and regularly assess vulnerabilities.
  • Use multifactor authentication, including voice recognition on your cellular and internet phone systems.

Companies must vigilantly monitor network ports, protocols and services for threats and should only grant administration privileges and access when necessary.

3. Optimize payables, overcome resistance and boost profit

The industry continues to move beyond paper and the costs of conducting day-to-day operations with it. What if you could turn accounts payable (AP) from a cost center into a profit center?

Virtual cards make it easier for companies to ditch paper and reconcile payments with more visibility. Earning rebates on those cards also can leverage funds to mitigate inflation and rising supplier costs.

One large real estate investment trust on the East Coast is in the initial stages of optimizing its payables systems to move from paper to more electronic payments – with added benefits.

They were motivated by transparent reporting features, greater efficiencies and strengthening relationships with their vendors. Rebates added value and helped to round out the firm’s decision to move forward.

Understand your objectives. Know your vendors. And trust the process.

4. AP automation and employee liberation

Improving customer and employee experiences are driving successful automation efforts. What does automation mean for the back office, where accounts payable can sometimes be a thankless job?

  • Easing troubleshooting and problem solving.
  • Empowering employees to tighten customer service turnarounds.
  • Allowing them to jump on board with other projects.
  • Creating a better economy of resources.

Going paperless means less time keying in invoices and more time to answer vendor and property manager emails so employees can research their payments needs.

Adding time savings to even a handful of employees can allocate resources to a project that may allow it to go live weeks ahead of schedule – dividends that can spiderweb into the rest of your business quickly.

“Our clients are really digging into their current payment processes as they have more time during the current economic environment to leverage their team to create efficiencies and build processes to strengthen their company’s payment strategies to weather any storm,” says Chelsey Osborne, U.S. Bank Senior Vice President, CRE DPS Region Manager.

Technology has come a long way to digitize payment processes where the experience is becoming an afterthought, like purchasing a ride share. The future of payments is about pushing the transaction itself into the background and allowing you to focus on your brand experience for both tenants and vendors.

To learn more about how digital payments are transforming treasury management in Commercial Real Estate, contact a U.S. Bank relationship manager.

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Disclosures

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Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.