20-Year Real Estate Supercycle?

This is one of the more positive interviews on real estate in a long time. It comes from Al Rabil, CEO and co-founder of Kayne Anderson, a big player in real estate who predicts we are at the beginning of a 20-year real estate supercycle. He mentions the management platform built at Kayne Anderson a couple of times as an advantage. Real estate is not mailbox money, unless it’s a ground lease. It takes capital for improvements, re-leasing, real estate tax appeals, management of operating expenses, and on and on. That’s a big selling point for his capital investors and is becoming even more crucial. The playing field for real estate management has been fairly level for decades. Some managers had better people who likely ran the real estate more optimally. People who cared and were paying attention. Managers could easily upgrade their people and should expect them to be better, and usually they were.

So what’s changed in the real estate management landscape?

AI will change everything.

There will be a 10-year period during which those implementing AI will have an advantage over those who don’t. At some point in the future (maybe 10 years), AI will be ubiquitous, but that’s definitely not today. We know real estate managers who say AI is a fad. They are scared their data will become public, so they do nothing, assuming the risk is much higher than the benefit of AI.

How is AI going to make real estate managers better? It’s going to streamline the process and lower operating costs while it improves income. A few examples:

• Leases will be negotiated and modified on AI platforms; lawyers become advisors, not the ones that do the heavy lifting on document drafting. If lawyers charge more per hour, the overall legal bill will be a fraction of what it would have been pre-AI.
• AI will set the rental rates and it will get closer to perfection as AI learns more and more. Gone are the days of guessing at what lease rate you should execute. AI will understand your property and the market. It will be able to analyze countless scenarios and suggest rates, terms, and rate increases that put the owner in the best possible position.
• AI will find and acquire the customers. It will level the playing field by democratizing customer acquisition. This will have a significant impact on how brokers work and get paid.
• AI will evaluate systems like HVAC, water, and lighting and create smart automation to save money. Every dollar saved is $20 dollars earned on a 5% cap.

Anyone with capital can buy the same real estate as anyone else. But those that can say they are using AI to be better will have an advantage in this next real estate cycle, no question.