Headwinds in Real Estate Industry Spotlight the Need for Payments Automation

When inflation and high interest rates drive economic conditions, real estate is going to take a hit

Throw a pandemic in the mix that emptied office space and changed the entire commercial real estate equation, and you have a 2024 business outlook and market conditions that are very different than they were just four years ago. According to a recent report from the National Association of Realtors, nearly every commercial real estate market segment encountered a continuous rise in vacancy rates and a deceleration in rent growth in 2023.

These dynamics are familiar to industry veterans who have seen occupancy rates and new construction starts varying from year to year. But what hasn’t changed are some of the business payment issues that are unique to the category. These payments are the lifeline of real estate transactions and often involve multiple parties, including buyers, sellers, brokers, and financiers. The industry also faces complex transaction structures involving multiple banks and multiple bank accounts, regulatory compliance burdens, and the ever-present risk of delayed payments affecting cash flow and project viability.

The complexities aren’t easily fixed. One thing is certain: digital processes, digital banking and automated payments are more important when there are headwinds in the market.

“Tech-forward tools can save commercial real estate organizations both time and money,” says a recent report from J.P. Morgan. “Digital processes are less time-consuming than manual, paper-based ones and can speed up accounts payable and receivable activities and reduce labor costs. For example, automation can help staff members spend less time on complex processes so they can focus on more meaningful issues, such as improving the resident experience. Likewise, organizations can gain greater efficiencies by implementing digital processes, which can help reduce human error and improve accuracy.”

Because it is so big and decentralized, real estate faces unique challenges that call for innovative solutions. This need is particularly pressing when considering the management of automated payments—a solution that can offer both visibility and control in an otherwise scattered operational environment. Real estate companies often manage properties across diverse geographical locations, making centralized oversight a logistical challenge. The larger the organization, the more decentralized its operations become, with properties scattered across various states, managed by numerous property managers with their own sets of invoices and financial transactions. This dispersion leads to a lack of visibility and control over financial operations, making it difficult for property owners to keep track of expenditures and financial health in real time.

For me, the drive to automate payments comes down to the need for visibility and control. For instance, a property owner in Chicago with apartment complexes across Indiana, Kentucky, and Iowa may find it challenging to monitor purchases and transactions in these locations. Traditional practices often involve the accumulation of invoices and financial statements that only get reviewed periodically, leading to a reactive rather than proactive management approach. This method can foster inefficiencies, such as delayed financial reporting and lack of real-time insight into cash flow and expenditures.

Visibility and control also come down to the details, particularly in keeping track of invoices, bank accounts, and overall cash positioning. With properties and associated bank accounts spread out, and often managed by different entities, gaining a comprehensive view of financial health is cumbersome. This fragmentation is further complicated when dealing with partners, loans, and construction projects, making daily cash position tracking a formidable task. In addition, the current practice of handling payments is inefficient and insecure, heavily relying on manual processes like maintaining bank account information in spreadsheets, manual entry of invoices into accounting systems, and the physical signing of checks. This manual intervention increases the risk of errors and fraud and results in significant time and resource consumption.

Automated payment solutions can revolutionize this system by providing real-time visibility and control over financial transactions. By consolidating bank accounts and automating the invoice-to-payment process, real estate companies can achieve a more streamlined, secure, and efficient operation. Automated payments facilitate better spend management, enabling companies to preemptively address financial commitments rather than reactively managing them.

Here's an example of an automated payment strategy in action. Taubman, who owns and operates 26 shopping centers across the U.S. and Asia, has consistently set benchmarks in design and productivity within the real estate sector for over sixty years. Taubman faced significant challenges in managing its accounts payable (AP) processes, primarily due to the manual and decentralized nature of these tasks. The AP team was laden with processing thousands of payments annually, a process marred by inefficiencies, manual data entry, slow approvals, and security vulnerabilities.

Recognizing the need for an overhaul, Taubman partnered with Bottomline to automate its AP processes. The collaboration led to implementing an automated invoicing solution seamlessly integrated into Taubman's existing ERP system, facilitating efficient invoice handling from receipt through approval. Additionally, adopting Bottomline’s business payments network, Paymode-X, addressed the inefficiencies of paper checks and enhanced AP efficiency, mitigated payment fraud risks, and unlocked new rebate opportunities, improving cash flow.

This strategic move to automate not only streamlined Taubman's AP processes, enabling centralized payments and reallocating staff to more strategic tasks, but also significantly improved payment security and vendor relations. The implementation of mobile technology further expedited invoice approvals, enhancing operational efficiency. Looking ahead, Taubman aims to expand payment automation across the organization.

The advantages are substantial, but I still see some resistance among companies I interact with. Real estate is a business rooted in a preference for traditional methods and skepticism towards technological solutions. However, I think the demonstrated benefits of automated payment systems, such as reduced workload, cost savings, and improved operational efficiency, present a compelling case for their adoption in real estate.

In conclusion, the real estate market's need for automated payment systems is clear. By embracing technology, companies can gain better visibility and control over their finances, streamline their operations, and position themselves for growth and success in an increasingly competitive market. The shift towards automated payments not only addresses the current inefficiencies but also paves the way for a more dynamic and responsive real estate industry.