For some it’s impossible to imagine: A time before Starbucks. Americans drank a lot of coffee back then, but they brewed at home, enjoying Folgers “Crystals” (what were those?) and Maxwell House. Things changed and coffee became a customer-centric business focused on quality and user experience. Now, with a record 40,000 coffee shops in the U.S., you specify and pay for exactly the coffee drink you want on your phone and have it waiting for you when you arrive.

The same shift reshaped one business after another, often with new technology as the lever. Buying a car, ordering food, listening to music, taking a flight, exercising with a trainer - all of these things are easy to access because the companies that provide them are now service platforms. For these firms and their customers, “the value proposition … matches the users’ needs.”

Real estate’s own journey from simply producing and owning buildings to a focus on providing services has been slow, a recent paper argues, and the “applecart” owners from the McLuhan quote should take lessons from what’s happening all around them.

Specifically, owners should rethink the role building managers play. Real estate management, from an institutional owner’s perspective, is focused on “generating and maximizing returns, minimizing risks, and providing value for external customers.” These owner priorities drive asset management decisions, but from the manager’s vantage it’s different. For them, every day they interface with tenants and others that derive utility from the physical asset, and for managers “user requirements are the drivers.”

This lays the groundwork for the evolution other businesses have experienced, where customer needs drive rapid and often cost-saving innovation. And managers have a privileged position: they know the details of each user’s experience. Having this much data is a gift, and in analogous situations, other industries have used these customer insights to take a “stakeholder theory” approach, optimizing for the full set of parties who touch the asset.

Thinking along those lines, instead of management of stakeholders, which is the traditional way owners look at managers and teh other groups a building serves, management for stakeholders would bring more value for tenants, and in time would drive “long-term success” for owners.

To be fair, real estate has evolved and notched some recent, customer-centric wins. The ongoing growth in co-working is a great example. Homesharing in apartments is an emerging one. And the resident- and tenant-facing proptech, EliseAI being a poster child, is both matching users’ needs and quickly creating new revenue models for managers and owners.

The paper highlights an underlying truth: Most management activity “is based on information exchange and handling,” including all things related to R&M and engineering in a building. This is why so many systems exist “that combine drawing and geometries with data,” like digital twins. But, broadly speaking, that rich “information exchange” between tenants, managers and other stakeholders is rarely if ever organized and analyzed to identify changing customer preferences, the kinds of insights that could inform asset renovations or design and operating priorities for new builds. If we wanted to, real estate owners could find out what their customers really want.

A macro-aside, we at the Haystack have seen a curious and related trend that the paper points out: real estate owners and users “are often put together in literature and treated as a whole category.” Weird, right? The researchers speculate this happens because real estate is a supply-side dominated industry, where owners, developers and managers determine by themselves the user experience. But the fact is that “every activity in the real estate economy exists to meet the demand side’s needs.”

In the wide-angle, this paper’s real contribution is reminding us that the information generated inside our assets is a valuable resource. As it has for many other industries, it can drive growth. The managers who sit closest to tenants and residents and observe changing preferences in real time increasingly have the technology to capture and organize those insights. But investors aren’t generally savvy to these changing preferences; they’re focused, like their forebears, on investment outcomes and not long-term strategic improvement. The next source of competitive advantage may come from understanding users well enough to anticipate their needs.

Who: Lonestar Data Holdings

What: A niche play on data centers in space

The Sparkle: If you’re looking for a sign of the times, Lonestar Founder Chris Scott will point out that Iran, with its limited offensive capabilities in the current conflict, targeted AWS data centers in the UAE. Data is the most valuable thing we have, Scott argues, which is why countries and companies and individuals will prioritize saving it in as secure a location as possible. And that would be in orbit. Lonestar’s mission is to build data centers in space - Starvaults - designed to store information, not process your AI prompts. Lonestar already has commitments and a waitlist for its first set of data centers.

Do you vote on election day?

Early in-person voting is becoming the exception. Rates of mail-in voting have bounced around (thanks COVID), but between the two, only two in five voters pulled a lever on election day itself in 2024. Interestingly, mail-in voting is a Frontier phenomenon - almost three out of four voters in Western states voted by mail in 2024, compared to 21% or less everywhere else in the country.

Link: https://usafacts.org/articles/how-many-voters-cast-ballots-early-and-by-mail/

Editor’s Note: The Real Estate Haystack believes in sharing valuable information. If you enjoyed this week's newsletter, subscribe for regular delivery and forward it to a friend or colleague who might find it useful. It's a quick and easy way to spread the word.