Naked Cyclists And Knowing Who’s In Charge: What You Miss When You Can’t Tour An Asset
Virtual tours of real estate assets have come on leaps and bounds in recent years, and the limits to mobility imposed by lockdowns in the U.S. and UK have increased their adoption dramatically.
But there are some things a virtual tour can never re-create: Commercial property is a uniquely diverse sector where no two assets are the same. There are some things that are inevitably missed if a buyer or potential tenant cannot physically walk the asset. Some are serious, some funny, but all play a part in holding back investment and leasing decisions while assets have to primarily be viewed on a screen.
UK investor Brockton bought 10 Hammersmith Grove, an office building in west London, in 2016, completing the transaction in just 66 hours because the seller needed a quick deal in the days after the UK’s Brexit vote.
Co-Managing Partner David Marks said that in spite of the quick turnaround, he and his team insisted on visiting every floor of the nine-storey building ahead of the purchase.
“We started at the top and worked down, and got to the fourth floor,” he remembered. “And it felt really stuffy. We asked the agent, what’s wrong with the air conditioning on this floor, and they said, nothing, it’s a brand new building, you must just be working up a sweat walking around.”
Marks asked to go and have a look around the building’s plant and equipment room, much to the selling agent’s surprise, and lo and behold, someone was in there fixing the air conditioning for the fourth floor.
“It wasn't a deal-breaker, but you have to pick around the guts of the building,” he said.
That wasn’t all they found in the basement.
“We walked into a room and found two guys stark naked in there,” he said. “It turned out they worked for Fox Networks, one of the tenants, and they cycled in. The building only had one unisex shower in a windowless room in the basement for anyone who wanted to cycle.”
In the modern world of amenities, that was a bit more serious, the kind of thing that might put new tenants off.
Brockton halted a letting in one of the building’s ground floor retail units that was in progress to a restaurant, put in a boutique fitness brand and made it a condition of the brand’s lease that its changing facilities could also be used by the building’s office tenants.
Sometimes the need to walk an asset is basic due diligence. Marks recalled that one of his staff had once worked as a junior analyst at an investment bank that was buying a large portfolio of German offices being sold and leased back by a bank. They were told by their boss they didn’t need to bother going to see all of the buildings in the huge portfolio. When the investment bank tried to secure financing for the deal from a fellow German lender, the debt provider told the buyer that it wouldn’t provide finance on at least one building — it was next to its own office, and the tenant had not occupied it for the past five years.
When it comes to virtual tours and presenting properties, the old adage “the camera never lies” is particularly misleading, said Rokstone founder Becky Fatemi, a high-end London residential property agent.
“The virtual tours you see today are an epic production,” she said, adding that they are created by professional crews using lighting techniques from film and TV productions. “They show a property at its best.”
There is also something less tangible that’s lost when tours are done remotely. There are some asset classes in particular that rely so much on atmosphere and feeling that they need to be walked in person to be truly understood before a buyer or tenant will part with significant sums of cash to own or occupy them.
“A hotel is the kind of asset I feel you need to walk to really understand,” Blackstone Head of European Real Estate James Seppala said. “You need to get a sense of the property, the rooms and public realm, the surrounding area and try and get a real flavour for what a guest will experience. I find you can't always tell that from a picture or a virtual tour.”
Is the walk from the hotel to the beach or train station pleasant and safe? Is the carpet in the lobby threadbare, are the rooms nicely configured? These are the kinds of things guests notice and write about in their all-important Tripadvisor reviews.
That sense of feel also holds true for the residential sector.
“People get a sense of the energy of a building when they tour it, they can tell if they are buying into a nice, happy family home,” Fatemi said.
The residential sector was ahead of commercial in adopting virtual tour technology, but Fatemi said there are some things virtual tours just can’t re-create.
“There is a reason why in the art world or with luxury goods, a premium gets paid for pieces that have been publicly displayed,” she said. “In central London you are dealing with beautiful historic buildings by great architects, and people need to see that.”
Commercial occupants for the last few years have been increasingly interested in the atmosphere of the surrounding area as well as the building that they might end up leasing.
“On a virtual tour of the office, you can do a lot, but it still needs a lot more investment from the commercial world,” Knight Frank Head of National Offices Emma Goodford said. “A virtual tour can show the reception and then a white box, the space as you will take, and maybe different options for what it might look like fitted out. But what it can’t do is give you the vibe of an area, that sense of community and creativity that the most successful schemes have, the sense that your brand and culture will improve in a thriving building or area and it is a place that people will want to come and work.”
That sense of the wider area is particularly vital for retailers deciding which stores they want to lease. Beyond the general feeling that an area attracts the right kind of consumer, there are some micro details they look at.
“Retailers want to know where people go when they come out the tube stations, where the street crossings are, where the bus stops are,” Chelsfield Group Head of Retail Strategy Rebeca Guzman Vidal said. “If you give them a plan of an area that doesn't have street crossings on it, they always ask where they are. Their stores are part of their marketing, and they want to know that if someone sees it from the other side of the road, they can get across to it easily.”
A bus stop right outside your store is good for mass-market retailers, not so good for high-end luxury brands as their shoppers don’t typically take the bus, and they don’t want lots of people standing around blocking the entrance.
Even in the world of logistics, where vibe and atmosphere don’t really factor into leasing and investment decisions, that knowledge of the wider area is important when underwriting an asset.
“Even with logistics, I like to get in the car if I can and drive to see the assets,” Seppala said. “Sometimes a logistics property may look like it is next to the motorway on a map, but when you go there you realise the trucks will actually have to drive down winding residential streets to get there, and that may make truck access challenging. It can be really helpful to go and see the physical real estate and decide if you are convinced or unconvinced.”
And then there is the all-important human factor, the subtle but absolutely crucial personal elements that a virtual tour followed up by a meeting on Zoom can’t ever replicate.
“One thing that’s really important when you show a tenant round an asset is finding out who the real decision-maker is, and paying attention to them,” Goodford said. “That is really hard on a video call.”
Property is regularly lambasted for its slow adoption of digital technology. But there are some things that just can’t replace human contact and physical presence in this most tangible of worlds.