Connecting the Dots on Tomorrow with Today’s Leaders: Insights from PRISM | LightBox (2024)

“Using AI is like handing a knife to someone. If you play with it the wrong way, you’re going to get cut.”

In the final session of PRISM, Dianne Crocker, Research Director at LightBox, engaged two leaders from the environmental consulting and commercial real estate (CRE) appraisal sectors. Dana J. Wagner, Vice President and National Director of Due Diligence Services at Terracon Consultants, Inc. and Jeff Garvin, Director of Appraisal Services at Bank OZK shared their unique perspectives on the conference’s three overarching themes: the transformative impact of technology, climate risk, and the challenges of today’s uncertain CRE market.

The Big Shift to Technology- Driven Workflows

Both panelists contrasted the early days of their careers with the technology practices of today. Garvin recalled physically visiting tax assessors’ offices and using paper maps, while his son, now an intern, can complete similar tasks from his desk. He shared how his son is the one teaching him how to use AI tools like ChatGPT to enhance efficiency, a testament to the significant strides technology has made.

Wagner recounted the lengthy manual processes like drafting on a table and physically visiting archives. He pointed out how report delivery has evolved from binding physical copies to predominantly electronic methods, though a few clients still prefer paper. This evolution underscores the shift towards more efficient, tech-driven workflows.

Embracing Technology: “The New Electricity”

After a fun look back to reflect on the days before digitized records when Phase I ESAs meant driving to libraries and government agencies to review microfiche and paper records, Dana Wagner emphasized the critical role of technology in reshaping traditional processes. He stressed the importance of integrating new tools within controlled environments, coining the phrase, “Set it up within your garden walls.” Wagner highlighted the necessity of data structuring to make information consumable, urging businesses to break down data silos and reanimate their data to add value.

Wagner also shed light on the critical role that technology plays inspiring, engaging, and attracting top talent. Younger staff, he observed, are more naturally adept with technology tools, so managers should be intentional about advocating for their involvement in leveraging these tools. “This is the new electricity. Embrace that,” he asserted. He also stressed the importance of balancing technology with professional judgment. While new tools can bring one 80% of the way, the final 20%—involving personal intellectual input—remains crucial.

Garvin provided a perspective from the appraisal sector, often criticized for its slow pace of technology adoption. In discussing the approach of comparing comps using a fixed set of data variables, Garvin emphasized the need to use a broader toolkit and an agile approach. “Appraisers tend to look at things as if they have one tool in their toolbox, and if, it’s a hammer, then everything is a nail,” he observed.

PRISM keynote speaker, Anat Baron, and several other tracks tackled the CRE industry’s early application of AI and ChatGPT. Garvin acknowledged the challenges of integrating AI in the appraisals sector and stressing the importance of using it intelligently: “Good appraisers are going to become great appraisers by using AI. Bad appraisers are going to become dangerous by using AI. It’s like handing a knife to someone. If you play with it the wrong way, you’re going to get cut.”

Addressing Climate Risk

The CRE industry’s growing focus on climate risk was another key PRISM theme addressed by earlier tracks. In response, Wagner highlighted the increasing demand for property resilience assessments, partly driven by new regulatory initiatives like the SEC’s new rule on climate risk disclosure. He noted that while the economic benefits of green buildings remain unproven in terms of higher rents in today’s market, the long-term value and growing momentum is clear. “The change is inevitable, but there’s no telling if it is 3, 5 or 10 years down the road,” he said, indicating that those with foresight will ultimately benefit.

Garvin echoed this sentiment, noting the banking sector’s cautious approach. The industry is in “wait-and-see mode,” but he expects a shift towards recognizing and capitalizing on climate resilience in the near future. The biggest challenge, as noted by an earlier session, is that interest and need are growing along with relevant data sets, but setting standardized processes for assessing and managing climate risk is only in its early stages.

Market Sentiments and Future Outlook

The conversation also touched on reactions to tracks earlier in the day regarding the uncertain market climate and early signs that transaction activity is beginning a slow thaw. From his viewpoint, Wagner expressed cautious optimism, buoyed by encouraging CPI data and the potential for interest rate cuts by the Fed. He noted that despite prevailing negativity, underlying fundamentals in growth areas like the Sunbelt are promising. While there are concerns about banks’ risk exposure and the wave of maturities, it comes down to having a diverse client base and focusing on hot spots.

Garvin shared his optimism for high-quality real estate projects, observing a “flight to quality” trend. He pointed out that while Class B and low-A grade properties face challenges, high-quality office projects are seeing an uptick in leasing activity. Recent transactions in stabilized properties are beginning to reset the market, and Garvin sees a lot of capital ready to invest once the conditions are right. “Distress,” he noted, “will be a slow boil as the volume of loans in distress increases and needs to be dealt with.”

Reasons for Optimism Ahead

The panel discussion ended with each speaker’s overall takeaway and what they are most optimistic about. Garvin shared that in the appraisal arena, “the ability to aggregate the data and test it against benchmarks is exciting.” He noted that what typically takes hours of reading reports will allow him an enormous amount of opportunity for processes and workflows to be streamlined. Wagner also pointed to LightBox’ innovations in technology as being most exciting. “To be able to pull salient information out of hundreds of pages of data will optimize time, and quicken our delivery,” Wagner predicted. However, he gave an important caveat that all who attended the conference walked away with as a big takeaway: “Innovations in technology like AI will serve as an assistant, not a replacement to people. These tools help get the best out of the information and provide some insights, but you definitely need the human element,” he remarked.