Whether its buying products, leasing space, or tracking cash, the Internet is swiftly becoming the way real estate companies get their business done. Through online business-to-business (B2B) services, these companies find their transactions cost less and their communications move more rapidly.

Once up and leased, buildings need to be maintained. Property owners are finding that task less costly and easier by visiting the web sites of suppliers like PurchasingCenter.com and FacilityPro.com.

Charles E. Smith Residential Realty subsidiary Consolidated Engineering Services Inc., (CES) of Arlington, VA, recently signed-on with PurchasingCenter.com, a maintenance and facility supplier.

We saw it as a way to better leverage our purchasing power by consolidating through a vendor like this,' said Phil Sayers, senior vice president. "We did some tests on their pricing and we liked what we saw."

Before joining PurchasingCenter.com, CES managers at its 50 building sites in the Washington, D.C., Metro area would order maintenance and engineering equipment as needed and would be billed individually. Now, each of those managers can buy their materials from PurchasingCenter.com online and CES receives one monthly billing statement covering all purchases and gets a volume discount.

"If our managers are more efficient purchasing, that's better for our customers," explained Sayers.

After signing on, PurchasingCenter.com staff met with CES's onsite managers to teach them how to order via the web site. Once online, each site manager creates a customized "My Catalog" of products they most often order, making building management easier. The personalized catalog makes ordering less cumbersome than scanning the 100,000 items available in the complete catalog.

Mark Overington, vice president of marketing, Purchasing Center.com, Burlington, MA, explains: "Our primary function is to provide a maintenance, repair, and operational supplies and materials (MRO) e-marketplace focused on mid-market accounts (from 100 employees to 1,000 employees). We then acquire products and place orders with distributors who ship the orders to the appropriate facility managers. We don't actually inventory products, but we take title of them and are then responsible for delivering that product in good form, taking returns, and billing the customer. Then we pay the distributor who shipped the product."

According to Overington, users of MRO industrial supplies in the United States spend around $190 billion per year. Therefore, it's not surprising other sites are springing up online as well. FacilityPro.com also supplies real estate related goods, suppliers and services via the Internet.

"Right now we have 1,000 different client locations, and 3,000 users buying products and supplies over our marketplace," said Peter Dunning, CEO, noting those transactions are heavily oriented towards retail. "The two biggest items purchased are lighting and janitorial."

"From a commerce perspective, anybody that owns, operates or manages real estate can procure goods, supplies and services such as electrical, mechanical, consumable paper products, or chemicals for cleaning. What we're doing is aggregating volume together, centralizing buying, and saving substantially on products."

Besides offering MRO, FacilityPro.com is building applications that manage portfolios, lease administration and energy bills.

For Summit Properties Inc., Charlotte, N.C., nearly every aspect of the company's business is happening via cyberspace.

"The Internet is creating a conduit or intermediary that gives us a market place for vendors and our properties," says Alex Burris, vice president of information technology. Summit is part owner of SiteStuff.com, where builders and developers can purchase everything from appliances to window treatments, and office products to safety tools.

Streamlining Processes
The models of business keep changing quickly. Burris says he's not even sure which ones will survive this latest evolution where the Internet becomes as much a part of the inner-office workings as does accounting software.

"One exciting thing about SiteStuff.com," he adds, "is that we're seeing long-term benefits of back-office functions. We will be able to integrate straight into our accounting system. Our accounting department is pretty excited about cutting the number of invoices they have to deal with."

Because of this intricate set up, he says, Summit is looking at forming long-term relationships with service providers who offer products they can integrate into their daily business functions. It's not enough for vendors to just operate an e-commerce site, they must provide tools to help REIT operators run their businesses more smoothly.

"You're trying to develop long-term relationship by investing in companies to help us facilitate these goals. They need capital, we need a strong partner," he says. "Sounds like a good partnership to me."

Dana Hamilton, senior vice president of Archstone Communities Inc., in Denver, CO, agrees: "The people who tout pricing falls on deaf ears to me. The people who tout process and can show me how they can take the paper away from our system and make life easier for our associates and make managing and reporting more clear," have her attention.

That's the same concern for Molly Hobin, vice president of tenant leasing, Arden Realty Inc., Los Angeles, CA. The REIT is using the Internet in its business to not only order office products online, it's also using it as a means of retaining and satisfying tenants. The REIT just launched a new feature in its tenant service area called Preferred Provider Project.

"We've aligned with several vendors—furniture sales or rental, telecommunications, computer providers, health club, copy machine repair—who offer discounts to our tenants," she says. "We have 3,200 tenants and to have access to them the vendors must offer tenant discounts and pay affinity fees to Arden."

Yet another online presence for the company entails a joint outreach (not yet launched). "We'll have all of our available space, drawings of plans, etc., that we can e-mail to a prospective tenant. This will help us shorten the time it takes to get a transaction completed," she says.

Already on the techno-track buying software online and submitting leases, CenterPoint Properties, Oak Brooke, IL, just jumped ahead in the technology race by partnering with Phatpipe Inc., Carlsbad, CA, a tenant-centric business services provider. "Our reason for doing this was for tenant satisfaction," said Scott Zimmerman, Chief Information Officer.

By partnering with Phatpipe, the REITs is enabling its tenants to aggregate their buying power. They can buy telecom, utilities, and Cisco and Microsoft products. We'll start buying some things through it too."

Soon, CenterPoint tenants will be able to pay their rents online, check their accounts and order maintenance through the REIT's web site.

To capitalize on burgeoning B2B opportunities and other technologies, a group of REITs and other real estate related companies has recently launched an enterprise called Project Constellation which will seek out and develop new ideas and projects. Although still in the early stages, this entrepreneurial venture may inspire others to do the same. (See "It's In Their Stars," p. 24)

New Archetypes
Commercial real estate was made for the Internet, some experts say, but it's going to require a paradigm shift on the part of the practitioners. You might call this latest trend, Phase II of online business-to-business services. No longer is it good enough to just have a web site.

"I see the commercial real estate industry integrating the Internet into many aspects of their daily business," said BidCom's Salvador Chavez, co-founder and executive vice president. "This industry has historically been plagued with a lack of process. That lack produced an inefficient supply chain. With the Internet, companies can communicate and collaborate—both internally and externally—more efficiently to save a significant amount of time and money."

San Francisco-based BidCom's suite of e-business services is an integrated work environment that encapsulates the building industry's standard business practices with business process models enabling the management of a building project—from design and planning through construction and closeout.

Real estate-oriented Inman.com, has highlighted BidCom's effective Internet usage, where analyst Clare Gillan of International Data Corp., Framingham, MA, said BidCom is using the application service provider business model in a novel and highly effective way. "It takes them out of competition with traditional project management tools," she said.

The international developers Hines, Houston, TX, has also taken the integration of the Internet into its project management with BidCom's services. "We'll use a web site management system with our contractors and subcontractors for document distribution, schedules, change order pricing, applications for payment, punch lists—everything," says Jerry Lea, senior vice president.

"It is working. BidCom's refining what they're doing, but we're always a little behind what they can do," said Lea, adding that there's always a learning curve for online management, but it's been well worth it. The main drawback, he says, is "we're not as sophisticated as BidCom and have to learn an Internet-based system."

Using online management, however, drastically reduces the time it takes to work on the Hines' projects across the country. "It gives us real accountability. A subcontractor can no longer say, 'I haven't received it yet,' after we e-mail a document. Because, using e-mail, I know when he receives a document and how many times it's been opened. It keeps us all honest: the ones who are honest stay honest and the ones who aren't honest are going to have to change," he says.

Even with overnight delivery, the traditional means of communication can't compete with using an online management system, he says. "The sub sends changes to a contractor, the contractor to the architect, the architect to the consultant," all using overnight mail. By the time [the back-and-forth] is over, the old way of doing business could cost an extra six days to institute changes. With everything online, "you could have [the process] down to one day, if worked right," he says.

Even though some of the subs don't have computers, Lea says the faxing and scanning of documents for them is still better than the old way of information exchange. "It's a tremendous tool," he says. "And it is the way we're going to be doing business from now on."

Lea adds that a year from now, most major developers will be using some sort of online management system. In two years, only the smaller developers will be without. "This is going to be used for the full life-cycle of the project."

Experts Agree
A recent report from Banc of America Securities LLC, San Francisco, CA, paints a bright picture for those who grasp the information-age's potential and ride it into the future. The report, "e-Commercial Real Estate's Land of Opportunity," written by Christopher J. Hartung, managing director and senior research analyst, states the number of Internet users is slated to double in the next three years to 500 million.

"Keep in mind that real estate companies are in the very early stages of utilizing application technology," said Hartung. "Many of the companies that are looking at B2B applications are essentially test driving them within their portfolio. I would expect that the full breadth of the impact will not be felt for a number of years because it takes a while for behavior patterns to change, particularly in an industry where the majority of personnel who need to use the system are at the property level. When it is fully implemented I think there is a potential to dramatically increase the efficiency of property management."

Using an apartment community as an example, Hartung noted that because of its efficiency, owners will save money by having tenants connected to the property management staff via the Internet. For instance, each time a tenant sends an e-mail requesting maintenance that information is entered into a permanent database. So, if the tenant should later request a repair, the property manager can look up what other maintenance may be required in that unit.

"Because you have catalogued all the replacement parts in that unit the maintenance staff will know whether it's time to also replace light bulbs," he said. "That type of depth of information has never been available because the technology wasn't there," he added, "But we're getting to the point where we can seamlessly integrate that information so that manager, owners and users can function much more efficiently."

Meanwhile, Internet researchers Gartner Group predicts that B2B e-commerce revenues will hit $7.3 trillion ($2.7 trillion in the U.S.) by 2004 and represent seven percent of the $105 trillion in total global sales transactions.

The figures for global commercial real estate are just as eye-opening: "According to the Urban Land Institute, Washington, D.C., the annual value of construction is more than $600 billion while the output from real estate services exceeds $500 billion annually [Bureau of Labor Statistics]," according to the Banc of America report. "Not to mention the billions and even trillions spent by those housed/officed in real estate assets."

Obviously, a market with as much size as real estate holds great opportunity for those willing to integrate the Internet into their business.

"There are two ways that real estate companies are going to benefit from this," explains Lee Schalop, real estate analyst, Credit Suisse First Boston, New York, NY. "The first is on the cash flow side in that they can either generate incremental revenue by selling additional services, or second, by using technology to lower their costs. Interestingly, it's not so much about per unit cost. Most real estate companies are already big enough so that they already buy washing machines cheaper than we would if we wandered into an electronics store. It's about making the process more efficient so your average company doesn't have to pay five accounts payable people to evaluate invoices and process payments. The name of the game is making the system more efficient."

Happier Tenants, Better Retention
REIT and REOC spokespersons say, you can add to that, better customer service, and therefore higher tenant retention levels.

"Our vision for how we're going to use technology in our business is to first and foremost improve the customer experience, day-to-day operations and finally to facilitate external and internal communications," says Archstone's Dana Hamilton. "We're trying to build a brand and we believe the things we're doing in the technology area will bolster that brand."

Archstone has partnered with SafeRent.com to ease the move-in/move-out process for their apartment tenants. Using statistical models developed by Harvard professors for SafeRent.com, apartment managers can use the new technology to screen perspective applicants in 30 seconds.

"We're putting the whole leasing process online. One of the things that Archstone is doing is building that last mile by integrating SafeRent's credit process with true online leasing processing. We think that's exciting," Hamilton says. "It improves the customer experience because it takes away all that paper work."

SafeRent applications are easy to use. "The leasing agent or apartment manager can go to our web site, enter the required applicant information and our system pulls their credit history from a national database, extracts relevant factors and compares them to our database for renter characteristics," explains Linda Bush, president. "Our system then makes a prediction on how long this lease is likely to be good."

The result is returned to the leasing agent in two minutes and the applicant can sign a lease on the spot instead of telling the would-be renter to call back in a day or two.

"It doesn't make sense for an apartment manager to say come back in two days to find out if we approve you. You get a lot of fall out at that point," noted Bush.

Moving Forward
Kevin Travers, president and founder of Comro.com, Chicago, IL, an extensive commercial real estate marketing web site, sees the advent of the Internet in commercial real estate as a way to eliminate the inefficiencies of the industry, as well as increase the flow and accuracy of information.

Centerpoint is a user of Comro.com's listing service. "What we've done with them and people like Costar is to have our system electronically and automatically update their data," said Zimmerman.

Comro.com is one of several commercial real estate web sites that act as a multiple listing system for commercial real estate firms. The latest evolution for these sites, though, is to create community.

"We're spending a lot of time in adding other content and resources and tools [on Comro.com] to create the sense of community that hasn't existed in the past because of the industry's fragmented nature," he said. "We have such a localized and highly fragmented industry with so many participants."

Travers says the industry is seeing a disparity of those that are forward thinking and those who are continuing to operate on a basic level—asset accumulators who continue to perceive tenants as rent payers instead of rent paying business owners and operators.

"But the market is looking for forward thinkers, seeing that we house businesses that have a variety of needs and we are in a good position of being the gatekeepers to help service them in other ways," he said.

Loopnet.com, San Francisco, CA, was one of the first online listing-type commercial web sites to launch four-and-a-half years ago. In the Internet culture, that's an eternity. Like Comro.com, the site lists properties online for sale and lease, as well as creates an industry-based online community. Currently, it has more than 100,000 properties listed, according to Mark McLaughlin, vice president of sales. As the marketplace grows, so do service providers like Loopnet. "Our MarketNow section is a place for the supply site to provide the completion of the buyer/seller side," says McLaughlin. Here, buyers and sellers can match up with brokers or customers looking for a specific property. It serves as a type of haves/wants section. So far, the system has matched 25,000 listings through this program. The next area of growth for Loopnet is its online financing. McLaughlin says more than $3 billion of commercial loans have closed in the last eight months. "The Internet has enabled property management companies, REITs and commercial developers to take on new roles," says Salvador Chavez of BidCom.com. "These companies are now consultants to their clients. With a project management application and e-marketplace like BidCom's, these companies can provide their clients with everything from prices on supplies to projects to bid on. With the Internet, these companies provide another value-added service to their clients."

Travers adds: "This is a marathon and the race has just begun."