Near the end of July 2023, the Starnet staff spent a few days at the Omni Louisville in a board room navigating the upcoming budget approval process. A few weeks prior to the meeting, a casual search on the internet for “Artificial Intelligence-Gen AI” tools to increase the productivity of the Starnet staff quickly became an urgent call to action. Compared to the impact generative artificial intelligence [generative AI] and software bots will have on society, our narrow focus to help members navigate hybrid office trends and higher for longer interest rates were minor distractions.

This generative AI and software bot technology had the real promise of increasing productivity for Starnet stakeholders but would also change our entire industry. After a quick review of a series of thought leadership clips from pioneers on the generative AI topic, such as Peter Diamandis, Emad Mostaque, and Salim Ismail, there was no question we had to do research to prepare our members for the changing world, and quickly. Generative AI and software bots can now take care of rote tasks and even complement complex knowledge work. Flooring contractor office staff associates are knowledge workers. The nature of their work will change, as it will for millions of people.

Generative AI Adoption Enables Additional Investment in Field Contractor “Athletes”

We are recommending our membership move quickly to deploy these technologies to lower costs, increase productivity, and create greater capacity so they can pivot to field investments which will be necessary to increase capacity and scope. Employees across industries and roles can be freed up or redeployed to focus on work that involves judgment, innovation, creativity, and collaboration such as physical human effort with products, tools, and skilled labor in the field. They will be staffing the industrial athletes of the future. It is certain investors will no longer be building environments for routine work such as roles that can be replaced by generative AI, visualization and software bot technology. These displacing technology tools will rapidly sweep through insurance, law, design, and finance. There is precedent in the slow impact of offshoring that took over customer service call centers, but in far less time.

Follow The Money to Develop Strategy

Since last summer a lot of communication and encouragement has been shared with our Starnet member companies to get them ready for the next wave of change in commercial real estate-CRE. We believe we are entering a time of rapid CRE transformation. The stress of the current state of the global financial system and widely available data modeling will drive global real estate decision trends. One reliable way is to follow the money. The lesson is that history may not repeat, but it rhymes, especially when it is well funded.

Since the Great Financial Crisis, there have been several significant changes in commercial real estate financing. One of the major changes is the reduced role of regional banks in providing financial support for the industry. Private Equity and REITs have taken on a more prominent role in the financing of commercial real estate. Private Equity firms have become more active in real estate investment, often providing capital for development projects and purchasing existing properties. REITs, which pool investor funds to invest in real estate, have also increased their market share, providing more accessible investment opportunities for both individual and institutional investors. Additionally, the growth of alternative lending sources, such as debt funds and crowdfunding platforms, has provided borrowers with more financing options.

We will see Real Estate Crowdfunding begin to pool funds for investment in commercial properties. This will be a gateway for small investors to participate in opportunities that used to require a high net worth. This may be as transformative to real estate as the mutual fund industry has been on Wall Street, creating millions more active commercial real estate investors.

Blockchain technology will be applied to commercial real estate through tokenization, opening real estate investment globally online. Worldwide exchanges will be supported by investors trading tokens which represent partial shares of property or buildings, dramatically increasing liquidity and a global investment paradigm shift. Some industry leaders believe tokenization stands to transform the structure of real estate financial transactions and capital markets because it lets asset holders benefit from blockchain tech, such as 24/7 operations and instantaneous real time data. Blockchain also offers faster transaction settlement and a higher degree of automation which will fundamentally transform the laws and norms of commercial property for future generations.

What Is Your Strategy for Nonstop Disruption in Commercial Real Estate?

What does this mean for an entrepreneur in the commercial flooring industry during a period of constant disruption in commercial real estate? Because so many new entrants are watching their money flow, and asking different questions, things will change.

How will these trends in real estate financing impact commercial building contractors:

• Faster Transaction Settlement, Expense Mitigation, and Talent Optimization: Expense mitigation is a top priority for most real estate firms. They are focusing on reducing costs, particularly in talent and office space.
• Impact on Contractors: As real estate firms seek to optimize expenses; contractors may face pressure to provide cost-effective solutions. Contractors who can offer efficient and budget-friendly services over a larger scope of work may find more opportunities. This will impact product selection and drive more field automation. Your field teams will have to behave like a pit crew at a Formula One race on a regular basis for routine tasks.
• Enhanced Transparency and Environmental, Social, and Governance (ESG) Regulations: Many real estate firms lack the data, processes, and internal controls necessary to meet ESG compliance standards. They are looking for allies that can help them navigate the thousands of products installed in every project, documenting the detail in a reliable and repeatable manner.
• Impact on Contractors: Contractors who can support ESG requirements as installed across their entire scope of work will have a competitive advantage. Clients may seek contractors who can effectively support this documentation as installed, managing all of the brands as a consultant. A contractor becomes the solution or is relegated to second tier status.
• Cheaper and Nimble Infrastructure Through Technology Modernization: Real estate firms need to address technical debt by ramping up technology capabilities. Many still rely on legacy systems, and once they resolve their internal challenges, only debt free technical partners will get invitations for new business.
• Impact on Contractors: Contractors who adopt modern technology (such as BIM, project management software, and data automation tools) can enhance efficiency and collaboration. Clients will prefer contractors with market competitive technology supported by repeatable processes and capabilities over a large scope of work.
• Democratization of Investment, Crowdfunding, Tokenziation, New Money: Digital disruptors will increase efficiency and competition to the real estate space. New investors will have thousands of entry points and increase the float into commercial real estate across all segments, creating more wealth overall.
• Impact on Contractors: Contractors may choose to build their entire business on this new army of financial players as a focused client base. Speed, flexibility, digital deployment, and transparency of metrics would be extremely appealing to these new players, and old spreadsheet based business models may be shut out completely by the expectations.

The Response of Entrepreneurs

In a post-AI world with hybrid office/home flexibility, business leaders will likely focus on creating more attractive and innovative spaces to entice their most talented workers. Additionally, businesses may invest in creating more comfortable and flexible workspaces that cater to individual preferences. All the while, they will attempt to impress global real estate investors with the finest examples of architecture, interior finishes and furniture. The real estate trend that supports this vision is the development of mixed-use properties that combine workspaces with amenities that encourage employees to spend more time in the office. Even though the change coming may seem overwhelming, entrepreneurs in our industry will anticipate and cater to these global real estate trends.