How I use location data as a CRE investor - Stefan Martinovic, Midwood Investments

How I use location data as a CRE investor - Stefan Martinovic, Midwood Investments

Stefan Martinovic is Vice-president of Investments at Midwood Investment & Development, a $2 billion dollar family real estate office that currently owns 140 properties around the United States. Midwood focuses primarily on mixed use and urban retail uses, along with some multi-family development. Active primarily in the northeast (Manhattan, Philadelphia, Boston, Washington D.C.), Midwood also has a growing presence in the Los Angeles area.

We asked Stefan to spend a little time with us talking about how he and Midwood use location data to explore investment and development opportunities and find an advantage in this challenging pandemic market. A power user of our platform, Stefan also provided some great practical tips for using our Neighborhood Insights tool. Here’s the transcript of our discussion.

Please tell us about yourself and how you got on the path to using location data to inform investment decisions.

My name is Stefan Martinovic. I am in charge of Midwood’s analytics department, which for the time being is just me. For some time, I have been working to evaluate different datasets and technology solutions in order to put together our tech stack. As part of that, along with a colleague, I developed a proprietary GIS system that basically synthesizes a bunch of different data points into a digestible scoring system to help us benchmark the mobility of a particular location and block. This gives us access to a bunch of different maps and other analytics that are easy to pull-up and present when we are in a committee meeting, or we are debating the validity of a particular investment. It’s good to have something that gives us the ability to peel back layers of the onion a little bit and understand what is driving growth or decline, depending on, call it 100 different market levels at the macro and micro level.  

I have been using different location data tools for two or three years now and I have seen a bunch of them. We are a Unacast client and from time to time will work with POI datasets for locations. Really, we use different tools in a variety of use cases; everything from examining the health and recovery of retail centres and neighbourhoods, to trying to understand migration patterns, and figuring out where people are moving, and how that impacts local demographics and income levels. Thomas Walle and I started to chat a year and a half ago and he asked me to come on board as an advisor. Since then, we have worked on a bunch of different things, including product offerings. There are a lot of use cases for location data in CRE investing and a lot of value in the stuff we are turning-up.  

What is the good, the bad and the ugly of buying location data as a CRE investor?

For some of the other offerings that we have evaluated, especially on the raw data side, it is really difficult to pin down pros and cons of different sources of the data in terms of GPS versus app versus beacon.  It is also difficult in many ways to land on a pricing structure and understanding the demand that we have for different things. We are not doing point-based pricing for anything because we just don't know how many points we are going to need to have the clarity we want around a particular market or neighborhood at any given time.

Instead, we have kind gone in a different direction, like an all you can eat model. It is easy to buy and it is easy to price. It makes my life a lot easier, because we pay for a subscription and I do not have to worry about consuming a credit or something like that and trying to figure out if this deal is worth my time.  I also do not also run the risk of leaving purchased credits on the table if we haven't fully consumed them. A lot of the stuff that I have personally wanted ended up in the Emerging Areas product. As a result of using the data and tools differently, I find I have been applying them in a bunch of different ways, and we are learning -- everything from office and retail occupancy to multi family and the residential market as well.

There are other CRE investors out there losing sleep over a lack of insight into the same things. What’s the key to help them understand location data can help make it better?

I think the key is to get past understanding and trusting the source and the accuracy of the data. Once you are there, it comes down to the application for a specific use case and then how much remaining work needs to be done once we take on the output from the system, and what we can then do with it. I would say, for people like myself, there is a huge need to understand unit level performance and location performance, probably now more than ever. 

It is also a matter of education and outreach. CRE is a highly fragmented industry so it takes some time to chase people down and talk to them, but I think the word is out that these kinds of data sets are out there. People are seeing stories that talk about them on Reuters and the New York Times and other places, and they are becoming more known and more accepted. So, I would think that any real estate company, particularly institutional ones, really should and need to be using location datasets and tools in order to stay on top in order to know what is going on in the market.  

Talk a bit about how you use location data and our tools in your daily work.

We are using it to compare performance, or recovery performance of inner city census block groups (CBGs). Looking at that kind of detail at the block group level is really helpful -- figuring out for area buckets like census groups or zip codes or whatever is definitely where there was a gap in the market before Unacast. It is so important because the foot traffic data has a much higher latency than census data or anything else like that. So, with Neighborhood Insights, there is a lot of value there because I can get an understanding of who is there, how that is changing, and how much money they earn, then mash it up with other data points from CRE or other stuff. That is where we get the most traction because we are looking at a bunch of different data sources in focus together, rather than just a few in the spotlight.

To me, this is solving for as much of my workload as possible in a cost effective and approachable way. Midwood is fortunate in that we have some help internally to take the output and process it; not many people do. I would say we are the rare exception. So, the closer solutions can get to the very specific output that a CRE investor wants, the more powerful that solution’s value proposition. 

Do you see this need for internal capacity to process and apply data as a growing need for CRE investment companies?

I guess I do. We do not necessarily have that need but I am sure that providing a certain number of hours on a specific project or whatever as part of an offering is helpful. The challenge is, most of the time, a commercial real estate investor does not know what to ask a data scientist to do. What I wrestle with on a regular basis is translating very nuanced and technical real estate terminology to a particular data point and figuring out how to get from A to B.  I think that maybe bundling datasets or reports in terms of different areas makes sense, like, if I live in and want to invest in Pittsburgh, sell me that for one price, and upsell by also offering a bundle of reports on Philadelphia, Baltimore and DC. It’s a small adjustment from the sales side, but it makes perfect sense to the investor working on a skeleton budget to squeeze value from every bit of data.

It does not matter if you are a CRE investor, or a retail brand, or a local government. You want to know everything before you make a decision and if you have to think too hard about how you are getting that information, or what’s included at what price, you end up getting wrapped around the axle and fail.

When you research a potential investment using location data, what are the first things you look to see. What questions do you normally start with?

We want to see trends and we want to know demographic changes as a result in and out migration.  This year in particular, we are benchmarking what a particular location or neighborhood has done over the last six versus the same six-month period of last year. Just the other day, someone from the economic development office of a city we have property in called us and was like “Hey, the blocks that you guys own properties on are back to 75% foot traffic this week,” and they sent a chart that showed weekly foot traffic versus 12 months prior. 

But, as Unacast knows and as I have come to learn, weekly data is not very useful. So I looked at our own data, blew it up to a month with a yearly look back, and the results were much, much worse.  Having a clear idea of how core urban areas are performing from city to city helps us clear away that kind of white noise and get an understanding of where there are real anomalies or outliers of note that we need to pay attention to. 

Where does Midwood intend to go with location data over the coming months and quarters? 

We are kind of there.  We have all the tools and the resources and we have invested in building and sourcing over the last two years. If anything, we are focused on getting the value out of the data and tools that we have because, and I think this is probably true across the board, we are cutting our budget and investment activity is slow. Honestly, for the kind of stuff that we buy, nobody is really transacting anything. There is no price discovery and nobody really knows what anything is worth because the only people that are selling right now into a down market are those that are forced to sell.  

We are buckling-down and trying to think outside the box for the next three to six months, trying to stir-up opportunities we might not originally have considered, like international stuff, public market stuff, whatever. Like everyone else, we are also hoping there is some sense of a return to stability and normalcy in the beginning of 2021 and that the market will perk up again.  I think that will be the case, but for the time being it is just trying to absorb the deluge of information coming out in real time. So much that is happening in the market is driven not even necessarily by demographics, or foot traffic, or anything else. 

What drives the market is live on the news 24/7 every day now. As much as we want to pull more data out and try and make sense of it, things move more rapidly that the data can reflect and anything can turn on a dime. In 2021, we are focused on being cognizant of that, trying to shore-up our existing portfolio, and being prudent about capital resources so that as things rebound we are well-positioned.

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Stefan Martinovic is a seasoned innovator with domain expertise in technology, real estate, economic development and investment management. Midwood Investment & Development's exceptional team of leaders, thinkers and creators is committed to our long-term vision of strategically enhancing and adding value to key urban centers.

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