The Situs Companies - Trusted InSight into Global Real Estate

Houston-based Situs Cos. has announced the debut of Compass, a secure online e-library that centralizes commercial real estate property data and collects and makes available up-to-date comprehensive global market research and reports. The new Compass product is being used already as an information management platform for Situs, and is now for sale as a customized application for other companies worldwide. Situs is responsible for the development of the product, will customize, install, manage the information and the internet host site, as well as provide daily backing up of all new data every night.

Jennifer Bean, a director at Situs told CPN, "This product is, I believe, revolutionary and unprecedented. No other application combines the universe of a companies’ real estate information into one repository."

Three large company clients--two national and one international--are currently in negotiation to procure Compass, who will start the process by evaluating all of a companies information to see how it could be centralized on the portal.

Added Bean, “Compass has applicability and potential benefits for commercial property owners, and property management firms, as well as asset management companies and commercial and investment banks. For example, as a company evaluates all their internal information , they will often recognize redundancies, and I’ve seen savings of more than 25 percent of spending, as they can centralize and eliminate the unnecessary redundancies in their market research.”

COMPASS provides in-depth profiles, quarterly global market overviews and Situs INSIGHT, a newsletter which provides the up-to-date data categorized and organized by the type of property and location. The security of the information and the accuracy are top priorities in the system format. All of the information and data is managed with dedicated servers for each company who subscribes to the service at CSI WEBHOST, a network that will be constantly monitored.

Said Bean, “We are continuously expanding the global information that is available on the portal. There are whole new emerging markets worldwide that are opening up all the time such as India, China, Asia&hellipeven Germany. Daily we are going out to search and include new providers of market information about these emerging markets.”

MISMO, XML Reinforce CMBS Investor Confidence

In a global economy fraught with investor distrust, data transfer through extensible markup language (XML) standards can enhance data integrity and fill information gaps necessary for property investment into the commercial mortgage-backed securities market, according to proponents of the Mortgage Bankers Association’s MISMO XML standards.

“The CMBS world is all grown up now and information is not a novelty, it’s a necessity,” said Dan Szparaga, senior director of industry technology at MBA, speaking here recently at MBA’s Commercial/Multifamily Capital Markets Conference.

According to Szparaga, the time spent scrubbing data for data quality can be reduced dramatically through XML and MISMO because it represents a state-of-the-art for information transfer not just for the current environment, but for the next seven to 10 years. As information moves freely through origination, underwriting, closing, servicing and loan boarding, it will become more important for pricing, liquidity and greater efficiency. “We’re trying to cover the entire waterfront as much as possible,” Szparaga said.

XML standards—a common data dictionary that speaks the same language among different computer systems—creates a common interface that acts much like transferring a Microsoft Word document to another computer system with a Microsoft Word program—without that program, the data cannot transfer.

The commercial mortgage sector released standards for transfer servicing rights last year and this year, MISMO—the governance body for these standards—plans to release environmental site assessment, work order request response and commercial document index standards. The most important standard, however, could be moving the Commercial Mortgage Securities Association Investor Reporting Package (CMSA IRP) from Excel to XML , according to experts.

Szparaga said the IRP was very good as “common ubiquitous medium” but pain points for transfer of data through excel became cumbersome. For implementation by mid-2009 , it will involve an investor constituency to have access to reports without disturbing liquidity to the market. Back end data could run on a single, standards-based XML framework.

David Bodi, CMB, executive vice president of Midland Loan Services Inc.,/PNC Real Estate, Overland Park, Kan., recommended moving IRP to XML because even though excel IRP reduces transparency, it is limited to three rent rolls as opposed to unlimited data provided through XML. “We built a data dictionary based on the business,” Bodi said.

Bodi and Midland exemplify the advantages of MISMO. Two parties could trade data back and forth in a secure method with a standard mechanism and business partners can transmit data within the system rather than re-entering the data. Data re-entry has greater potential for mistakes, Bodi added.

Bodi, an industry veteran from the Resolution Trust Corp. of the early 1990s during the Savings and Loan crisis, said poor data integrity stalled the securitization process. “We’ve improved as an industry, but we haven’t improved that far,” he said. Midland, however, which received 5 percent of documents electronically, now retrieves 95 percent of servicing transfers electronically.

“There is no data entry,” Bodi said, noting that Midland has been able to transfer loans from one servicer to another with reentry. “This actually works. A law firm is working with us right now on the document transfer standard.”

Steven Powel, COO at the Situs Companies., Houston, said public to private transactions—rent roll transfers or other data transfers out of property management software such as Yardi and MRI —provide opportunities that “are just huge.” It allows companies the opportunity to move large amounts of data without having to go offshore, according to Powel.

During the California wildfires last month, Midland overlapped collateral with street addresses on a standard mapping tool, all with XML standard language. Address, state and county data was integrated to the map and the use other services. Fire data from California dropped onto the map and the company quickly determined the properties that were in the fire zone, targeting specific areas. When investors called, they knew if their investments were safe or not. “We have to exchange data between each other to be able to do that,” Bodi said. “With the right data in the system, you don’t need geocoding….We found out we only had one property actually destroyed.”

The same method used for the California wildfires could also apply to portfolio review and analysis. With all participants, they could use XML through a vendor that provides the standards or a firm could build capability into their own systems. “In some case, particularly among an asset in default, [we] need to talk with someone,” Bodi said. But in the case of California wildfires, XML standards allowed data to move into a mechanism to analyze information without using the people to do it, Bodi added.

Situs Cos. said data requires analysis and through the appraisal data standards subcommittee at MISMO, it found how to move that data while underwriting the property. Situs invested in Austin, Texas-based Snapwire, a business process management software, and Closer software from Franklin, Tenn.-based CJC Worldwide, an underwriting pipeline management system, pushing information from one application to another using XML feeds.

As property data, rent roll, address and financial information goes to a commercial mortgage broker, the information can immediately move to third party vendors for the due diligence process. The data, including appraisal, would import through a secured third party source to validate the appraisal information and move it forward. “With a live feed and XML, we can move validated data in five minutes…a reduction from three-to-eight man hours,” Powel said.

Three or four years ago, the data transfer methods would be ‘pie in the sky’ talk but with technological advancements in software, it is becoming cost efficient and an advantage, according to Powel “With transparency comes a much more efficient market,” he said.

Joe Beggins , CEO of GEMSA Loan Services L.P ., Houston, also said MISMO fits in with other groups working on data standards. Bodi noted that the lending community works with the appraisal industry to develop appraisal standards, particularly through MISMO's Commercial Appraisal Workgroup and its use of the Appraisal Institute's Commercial Appraisal Report Standards (CARS). MISMO works to tie together standards developed by other groups alongside its own. “MISMO doesn’t have to build its own unique standards to cover the entire waterfront,” Bodi said. “They just have to work with others to cover [each area’s] sweet spot.”

Situs Companies Expanding

After decreasing some of its outsourcing operations in India and replacing them with an office in a North Carolina town that was losing jobs, the company is expanding to five more cities.

Before year's end, the company will have 11 offices worldwide, including outposts in Tokyo, Los Angeles, Atlanta, Delhi and Berlin.

Situs advises financial institutions, private property owners, institutional investors and developers.

Asset Management

Its Delhi office will provide asset management services for clients with investments throughout India. The Berlin office will offer financial due diligence to equity investors and investment banks, as well as asset management services for companies buying real estate in Europe.

"As you go farther east, the yields go up," said Situs CEO Ralph Howard, describing the investment strategy of some U.S. buyers. "Germany has higher yields than the U.K., and places like Poland have higher yields than Germany."

The Tokyo, Los Angeles and Atlanta offices will focus on loan underwriting and real estate consulting services for investment banks.

"Four years ago, we had 80 people in one office in Houston. Now we have almost 400 people worldwide," said Howard.

"Many people know more about us in New York and London than they do in Houston."

Call It Insourcing

One real-estate company has decreased its outsourcing of some services to India and turned to a North Carolina town that has lost jobs to overseas competitors.

Situs Cos., a Houston-based company that provides real-estate consulting services to the commercial-mortgage industry, says it will send some work to Robbins, N.C. The company previously had tried to outsource certain services to India, but looked elsewhere as well in part because of soaring rents in India, says Situs Chief Executive Ralph Howard.

Robbins, a community of 1,217, has lost jobs that migrated offshore from the textile and manufacturing industries. Steven Bean, a Situs managing director, identified the area because it's near where he grew up and has skilled workers who are underemployed. Robbins is also the hometown of presidential hopeful John Edwards.

Situs received 200 resumes for its Robbins outsourcing-solutions division, and out of 100 qualified applicants, about 25 have been hired so far. After training, they will help service and conduct due-diligence on loans.

"We think we are getting a better quality for the same price, and at the same time, we're creating U.S. jobs," says Mr. Bean.

Cap rates shift, fundamentals and alternative plays increase in investor importance and all at once due diligence becomes a front-burner issue. Ralph G. Howard, CEO of the Houston-based Situs Companies, a consultancy focused on the global finance and investment community, reports that he's seeing the shift in the nature of the requests his clientele is bringing to him--both in terms of global geography and basic need. He estimates that Situs has "touched" more than 10,100 properties in 2006, equating to some $56 billion in loans and acquisitions. But, he says, in a market of shifting dynamics, not nearly as much of that volume is to be found on native soil. For his take on the industry, read what he told GlobeSt.com in a recent, exclusive, interview:

Howard: Our mission is to become the foremost real estate consulting firm globally. Our clientele is comprised of investment banks, CMBS participants, REITs, pension funds and other acquirers of real estate.

Howard: We've focused a large part of our growth over the past five years on following our investment-bank clients as they have pursued, first, non-performing loan acquisitions and then originations in both Europe and Asia.

Howard: Our business here is a little more mature. We've been in business since 1985 and evolved into a consulting firm in the early '90s. We matured our business as the CMBS business matured. Over the years, a lot of the borrowers who have used our investment-backed clients have started to use our services when they acquire real estate.

GlobeSt.com: We're at the top of the cycle, and maybe a bit beyond that. What are you seeing?

Howard: Domestically, most of our clients have gotten a little more conservative as leverage has gone up and cap rates have remained compressed, so we're seeing a trend toward a little more due diligence. In fact, our role is evolving back to where it was in the late '90s, and the assets and the underlying value of the properties are becoming more important.

Howard: For the past four or five years, our business has been largely about processing the loans. The market was so strong, the real estate questions had diminished. This year we're seeing our higher-leverage lender clients are much more concerned about the underlying security, what’s going to happen in the next year or two in terms of tenant rollovers and things that might affect their ability to sell that loan. But our clients are also seeking new business in other places where there wasn't an international market before. We have an office in London and we're working all over Western Europe as well as in India and the Emirates. We're about to open an office in Tokyo. We're following the investment banking community as it chases business that will be more profitable than it is currently in the U.S.

Howard: Yields are being forced down and that's why we're seeing the globalization of real estate. The major players all over the world on both the debt and equity side are buying real estate all over the world. That's not just U.S. firms but European an Asian firms as well. And as you go offshore there is a similar trend. For example, the U.K. yield compression is even greater than it is in the U.S. The significant European players are pushing farther east, pioneering in Central Europe. We're working on transactions in the Czech Republic, Poland and Hungary now because there are better yields there.

GlobeSt.com: And going forward, if you were to compare your balance of offshore and domestic deals?

Howard: You'll see quite an important shift toward offshore. Probably 60% of our client base is involved in CMBS, securitizing mortgages. That business has become so efficient they're operating on relatively thin profit margins. The average deal now is between a point and two points. In Europe and Asia those same transactions can net anywhere between five and eight points. So in the CMBS world we'll continue to see increases in securitization outside the US.

Howard: More American players are going offshore, but there are more worldwide players. The Aussies are buying all over Asia. The Japanese are making big investments into Chinese real estate. The top 15 players are coming from all over the world.

Howard: The U.S. market is very efficient. In the CMBS world, between the ratings agencies and the B-piece buyers there's a lot of heavy due diligence. We may have little hiccups, like maybe in Michigan--given the problems of Ford and GM and the increase in vacancies--but the country as a whole is stabilizing. If there's a risk in the capital markets it might be in some of the CDO transactions where people are shoving all kinds of pieces of loans into them and the appetite has been great. Over the next few years those will have to be carefully monitored.

The opportunity to own or develop real estate in other countries is something that many companies consider when expanding globally.

In Houston, The Situs Companies, Stewart Information International and Realm Business Solutions Inc. are among companies that are refocusing their real estate finance efforts on the global marketplace to help companies complete the circle from finding the land they want to closing the deal.

However, financial complications can get in the way when countries have complex systems of real estate procedures.

"The information is not nearly as transparent as it is in the U.S.," says Martin Bronstein, principal and chairman of the board at The Situs Companies "You have to hire people in the local markets and have contacts to overcome those obstacles."

The 22-year-old real estate brokerage company has evolved into more service-related offerings over the years, from arranging commercial mortgages to loan services, actually collecting payments from the borrower for an institution.

Then in the early 1990s Situs got involved in underwriting, property inspection and helping banks as an outsourced option to getting loans closed.

After opening an office in New York, Bronstein and two other partners took a two-week trip around the world looking for opportunities to form relationships.

There were several areas in which Situs wanted to focus efforts to see where the market was heading. Included are:

• London, where it would provide services to lending platforms.
• India, to help do any back-office work as well as know what was going on in the outsourcing world.
• Hong Kong, to get a sense of the marketplace and how explosive the growth is.
• Tokyo, to look at opportunities to support Far East operations.

Over the next year, the company worked on relationships with clients to open an office in Western Europe, and at the end of 2004 had it up and running. In the past year it has also started talking about opening an operation in Hong Kong.

As the market for overseas development has grown, Situs' footprint spread to Latin America, which has become a retirement destination. There the company is acting as an intermediary to help finance or provide equity for projects.

"What's different about Latin America is that we can get ahead of our clients in terms of the market, whereas we are catching up to our clients in the Far East," Bronstein says.

Working with other countries, Bronstein has seen a big push in certain countries where institutions and hedge funds are purchasing nonperforming loans. Situs has then gone in and analyzed the real estate, consulting on how to price the bids to make the loans and how to reposition the assets.

Stewart Information International has also strategically located its offices in major financial centers around the world.

Through those offices the company is able to provide services such as title insurance.

Unlike the U.S., many countries have land registration systems where title insurance is not something people think about, says Mike Skalka, chairman and CEO of Stewart Information International.

"Title insurance is a fluke in the U.S. because after the Revolutionary War, public record was maintained for public use," he says. "Everywhere else it is maintained for government use. For example, in England if you want to find out information on my property you have to have my permission."

What makes it a more challenging environment is the fact that the typical lender is no longer just a bank or financial institution but can be a real estate investment trust or an insurance company.

And, similar to The Situs Companies, Stewart Information International is also working with individuals buying second homes or who have real estate investments and the need to secure their assets.

"In Europe in particular, they had never heard of a land claim," Skalka says. "Here you file a claim with the insurance company, and so we don't hear about it often. Overseas, though, the loser pays the winner's attorney's fees, not like here."

The education process is still going on as more companies expand overseas, he adds, as well as for Stewart itself.

The company has found that other countries prefer tailored services for a specific purpose. For example, in London there are requests for single risk instead comprehensive.

"The land registration works fine, but with the gap-type coverage they ask for, there is often time delays in the registries because of government bureaucracies," Skalka says. "The lender and the borrower need that money right away, so we cover that gap between the closing and registration, particularly in Central Europe."

While experts rave about Europe's potential, Mark Kingston sees his next big endeavor in Asia.

"Where we go is a function of employment practice, legal, government, cost of doing business and issues on currency," says Kingston, president and CEO of Realm Business Solutions. "Every country is a new battleground, but we found Asia to be the most concentrated."

The company offers a range of real estate software solutions for acquisitions, data and analysis, asset management, budgeting and forecasting, accounting and lease contract management.

Three years ago, Kingston started noticing the need for transparency and securitization in European and Asian markets.

In Japan the company met with key advisers and found that the government wanted to increase foreign capital but was having a problem with transparency. For the past couple of years, Realm has been working with participants in the market to understand and define general accounting practices, ultimately leading to the launch of the Japanese version of its acquisition software Argus in September.

"The software gives the ability for someone in Japan to build a financial analysis and send it off to other countries, where someone else can open up the same solutions in their local language with local mechanics," he says.

Realm also sees that there are investors looking to diversity their holdings across markets, so the company decided to start expanding Argus in more languages. A Chinese and Korean version will launch in 2007.

"No one knows the market like locals," Kingston says. "A great cord of feedback on how to modify the product and build the business is from locals."

To fulfill its goal, Realm has formed relationships with key leaders in the government as well as academic world.

By looking globally, all three of the companies have been able to optimize their strengths.

The Situs Companies is recognizing the economics of transactions and the needs of clients to have the information they need to get loans approved and work through financing properties.

"Situs has brought to the table the ability to securitize debt, take a look at properties and sell the loan so the level of risk is covered in all of the information. No one in Western Europe has that level of expertise," Bronstein says. "We are very bullish on the potential for international growth and have a great opportunity to expand our business."

Realm Business Solutions is also watching the global market. The company forecasts that Asia will be the area of greatest activity over the next five years. As a result, a driver to do business there will be where the company can get the best resources.


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Situs Launches Software to Centralize CRE Market Data

MISMO, XML Reinforce CMBS Investor Confidence

Situs Companies Expanding

Asset Management

Call It Insourcing