Closing the deal
- 29 January, 2004 12:42
The IT organization at GE Real Estate has automated most of the front-end processes for commercial real estate financing, which means employees can close deals faster and move on to the next ones.
That's important because, while most of the U.S. economy has been sputtering over the past three years, the commercial real estate sector has been white-hot. Prices for shopping malls, office buildings and industrial complexes have shot through the roof with intensified competition.
"It's very competitive out there, and with interest rates being low, we have to work harder to be competitive," says Michele Gabriele, director of North American technology at GE Real Estate, a division of GE Commercial Finance, one of four finance arms of General Electric Co.
Not that GE Real Estate had been underperforming. In 2000 and 2001, the company's earnings grew 24 percent and 25 percent, respectively, according to GE's annual reports. "Our business was doing well without much use of technology, but there were real opportunities to improve through automation," says Hank Zupnick, GE Real Estate's CIO.
Historically, many of the activities at GE that support commercial real estate financing deals were conducted manually, like calling or faxing in the details of an engineering report and entering them into the deal binder, says Zupnick. Whenever the status of a deal had to be updated, that would trigger a flurry of phone calls and faxes among 15 to 20 people, including salespeople, underwriters, appraisers and credit risk managers, says Gabriele.
In 2001, GE saw an opportunity to automate the lion's share of those activities while making the sales cycle more efficient and accurate. That year, the company began developing a customized, browser-based system using deal management software.
The Java-based system, which GE calls RE Source, electronically captures most of the information that goes into a commercial real estate deal and makes it available online to key participants. That has cut costs and shortened the sales cycle for deals in the US$10 million to $100 million range by 10 percent to 20 percent, says Zupnick.
"Thanks to this technology, we've been able to underwrite 25 percent more deals and remove $8 million to $9 million in expense each year for the past two years with the same amount of staff," Zupnick says.
Although it's tough to quantify the precise impact the seven-figure IT investment has had on the company's revenue, Zupnick says that the system paid for itself within a year. In addition, GE Real Estate's earnings rose 23 percent from $650 million in 2002 to $845 million in 2003, according to Dan Smith, senior vice president of the North America Debt group in Dallas.
"The revenue side is a lot trickier to measure, but we hear a lot of people in the company saying we wouldn't have been able to do as many deals and do them faster than we could two years ago," he adds.
"The bottom-line impact is more apparent from a productivity standpoint" than the top-line gains are, says Smith.
For instance, GE salespeople used to travel more often to get needed changes and approvals on deals, says Gabriele. By creating a collaborative system where approvals can be done electronically, she says, salespeople "are freed up in the field to work on the next deal."
Zupnick acknowledges that competitors such as Royal Bank of Canada and J.P. Morgan Chase & Co. have invested in comparable systems. Indeed, commercial real estate management has become much more automated than it used to be, says Thomas Glendening, president of Front Street on the Hudson, a N.Y.-based developer of distressed commercial properties.
"Even at a conventional level, what used to take weeks and months for financing approval can now be done in hours," says Glendening.
Investments in GE's RE Source project included adding Oracle database licenses; adding Sun Microsystems V880 Unix servers for testing, staging, production and backup systems; and hiring a few Java programmers and cross-training some veteran IT workers on Java, says Gabriele.
The core system was customized by GE development teams, and by CapitalThinking. It is used by about 1,000 people and includes workflow, document management, reporting and e-mail notification capabilities.
When the system went live in January 2002, 10 people from both CapitalThinking and GE were working on the project. Now nine GE staffers provide support and additional enhancements to RE Source.
Zupnick and Gabriele's team brought in end users from a variety of departments early on and asked them how the system could be enhanced to make them more productive. Getting business peers to free up their time to work on the system "was one of the biggest challenges," says Zupnick. But he and Gabriele were able to gain their commitment by selling them on the benefits of the system.
For example, RE Source uses color-coded fields to reflect a deal's status, such as whether the financing terms have been proposed or accepted. And if a deal gets approved, says Gabriele, salespeople are automatically notified on their BlackBerry devices. GE salespeople can send and receive information about a pending deal using their BlackBerries, but they can't approve deals using their mobile devices, says Zupnick. GE will consider adding that feature next year.
GE schedules four updates to the system each year. Current work includes incorporating an enhanced version of the system that's used in Japan to make it easier and faster for salespeople to prescreen potential deals, says Gabriele.
Whatever enhancements do come, Zupnick sees them as affirmation of a successful project. "That the business is continuing to invest in technology is a validation of our work."