What CRE and PropTech Get Wrong About Smart Buildings

Summary

• Commercial real estate and PropTech companies have tried to force a top-down approach to smart buildings
• This is bound to fail due to the complexity and lack of scalability
• A bottom-up approach creates value immediately, which grows as the platform expands in complexity and completeness

Since the first building management systems went into commercial real estate in the early 1980’s, “smart buildings” have been touted as the next industry standard.

Individual technologies have advanced quite a bit since then, but smart buildings remain just around the corner. Meanwhile, day-to-day work like maintenance rounds and expense forecasting are often still reliant on manual, paper-based processes. Why is that?

A major reason is that both the commercial real estate industry and newer PropTech players have tried to force a top-down approach to technology development and adoption. At a high-level, this approach takes all the systems, HVAC, lighting, access and security, etc., and categorizes them into their subsystems, data sources, and use cases. The thought process is that an integrated platform that connects every disparate system will harmonize and automate how these systems react to tenant preferences and changing conditions.

This top-down approach inevitable ends up creating some variation of this diagram:

What this diagram doesn’t show is the rabbit hole that some poor software engineer has to go down to integrate systems across dozens of manufacturers, naming conventions, API standards, and data types. Instead of creating smart buildings, this top-down approach creates smart building experts.

Each year, these experts convene at conferences to learn about new modeling architectures, updates to schema and ontology, and which system integrators are gaining the most traction. Every few years, someone looks around, realizes that there are too many standards, and resolves to build a universal version…

To serve these smart building experts, tech companies have formed to provide data platforms focused on integrating every type of data imaginable (leaving it up to the user to figure out what to do with it). More recently, PropTech companies have sprung up promising to apply AI and machine learning to this data so that the analysis can be performed and implemented automatically. Of course, so lowly humans can visualize and understand what’s going on, another set of companies are building extremely detailed (and expensive) digital twins of building systems.

Now after 40 years of this dance, there are only a handful of truly smart buildings, such as the Edge in Amsterdam. While magnificent feats of engineering and technology, these are the exceptions that prove the rule that the top-down approach to smart buildings has failed. Specifically, this approach is:

• Capital intensive: building management systems cost $2.50 to $8.00 per square foot and a team of smart building experts must be hired or contracted to fully utilize them
• Opportunity cost intensive: smart building experts continue to go farther down the rabbit hole while real-world problems for building operators proliferate and amplify  
• Fragile: the more complex the system architecture, the fewer people understand it, introducing risk and diminishing resilience to unforeseen changes to budgets and technology
• Lagging: the sheer size of the initiative requires lengthy RFP processes that all but guarantee that by the time a direction is selected, the technologies available will have changed  
• Ineffective at breaking down silos: while a ton of work goes into breaking down the silos between systems, operators remain siloed in their department and managers gain little transparency

We are now at an inflection point. The commercial real estate companies that are successfully scaling smart building technologies are doing so by shifting focus from a top-down to a bottom-up approach.

Building operators and engineers are desperate for technology to increase their efficiency and provide instant access to the information they need while on the go. Today, critical information like maintenance manuals and videos, riser diagrams, equipment warranties, and vendor contact information is most likely buried in a filing cabinet in the chief engineer’s office. Adding to those filing cabinets are paper data entries from maintenance inspections, submeter readings, and work orders.

But this information, while essential to the daily work of building operators, is rarely mentioned in the plans for a top-down smart building deployment. Seen through this lens, it’s obvious why operators and engineers have traditionally been skeptical of the top-down approach.

A bottom-up approach on the other hand, puts the needs of operators first. First, the static information they need is digitized and mapped to specific pieces of equipment. Next, data entry tasks are moved from pen and paper to mobile apps. While the increased value from the improved productivity will be marginal at the onset, this strategy can be implemented across a large portfolio in a matter of weeks for a low cost and without extensive pilot projects and RFPs.

Just as importantly, in the process of digitizing building operators, engineers are performing the difficult system mapping work as a byproduct of their normal workflows. Tagging assets and recording routine data creates a very detailed mapping of the individual components, sensors and equipment that make up each system. From there, integrations and additional sensors can be deployed with targeted use cases until a complete top-level platform is formed.

In short, the beginnings are small, but the value is immediate and steadily grows as the platform expands in complexity and completeness.

The other benefit is for owners and asset managers. Smart building technology in a small pilot does nothing to move the needle; to be a game changer, technology must produce quantifiable value at the portfolio scale.

Top-down approaches inherently fail to achieve this. That’s because the initial complexity requires a pilot phase to cap downside risk. If the pilot successfully demonstrates that the technology can produce an attractive return on investment, it hasn’t proved that it can replicate those results across many different buildings. That inevitably leads to expansions being pushed off to the next budget season, internal champions moving jobs, greater skepticism and a loss of momentum.

A bottom-up approach is the exact opposite. Inexpensive and easy to deploy, owners and asset managers can see their portfolio light up on a dashboard within weeks. While the bottom-line asset value will be small early on, the ability to pick and choose more sophisticated solutions based on the budgets and unique needs of each asset affords the opportunity to think strategically and act quickly when the moment is right.

Want to see how a bottom-up approach works in practice? Schedule a demo of the Enertiv Platform.