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How Does ChatGPT Work With Commercial Real Estate?
I asked everyone's favorite chatbot to help me out with three important commercial real estate functions. Here's what happened.
Everyone knows about ChatGPT. It's taken the world by storm since its launch at the end of November 2022. Given how much has changed so quickly, it feels like it's been here for years.
(If you seriously — seriously — don't know what ChatGPT is, it's a chatbot launched by OpenAI that uses artificial intelligence to answers virtually any question in a comprehensive, versatile way. Need more information? Just Google it. Or ask ChatGPT about itself.)
While the chat bot offers many opportunities for simple and complex questions and even has writing capabilities that have led many educational institutions to try and engineer ways of detecting bot-generated content to prevent cheating in academia.
ChatGPT and Commercial Real Estate
With all that in mind, I decided to give it a try to see how useful ChatGPT (and, I would imagine, similar AI-powered chatbots) can for practical commercial real estate purposes. This post goes deep into the rabbit hole for a few different applications.
Don't have time to read everything? I'd say, in summary, that there are a lot of ways the bot can cut down on the research time for many CRE processes, from leasing to property management to financing. But, it's emphatically not a replacement for a human, and there are some accuracy and timeliness issues.
ChatGPT and Commercial Leasing
I started with a fairly basic scenario to test ChatGPT's ability to provide analysis from a broker's perspective for an office lease. You can read my prompt below:
We are both leasing brokers with countless years of experience between us. My client plans to relocate because she's worried about rising costs in South Florida. What cost advantages does staying in the area have, versus relocating her business to the Philly area?
Here's what it fed back to me. It's a lot, so I'll quickly summarize and critique it after the quote.
Staying in the South Florida area does have some cost advantages over relocating to the Philadelphia area. Some of these include:
1. Lower cost of living: The cost of living in South Florida is generally lower than in Philadelphia. This includes housing, healthcare, and other necessities.
2. Lower taxes: Florida has no state income tax, which means that businesses and individuals can save money on their taxes.
3. Lower energy costs: The cost of electricity and natural gas is generally lower in South Florida than in Philadelphia.
4. Lower labor costs: The average wages in South Florida are generally lower than in Philadelphia, which can help to keep labor costs down for businesses.
5. Access to incentives and tax breaks: Florida state and local governments offer a variety of incentives and tax breaks for businesses that choose to relocate or expand in the state.
It's worth noting that some of these advantages may vary depending on the specific location in South Florida, and the company should consider their specific needs and priorities when making a decision. It's always good to have a local expert or a consultant to help you with the research and analysis of the costs of the different locations.
It's also important to note that even though relocating to Philadelphia may come with some increased costs, it may also come with new opportunities and advantages that could outweigh the costs for your client's company. For example, access to a larger and more established tech industry, more diverse talent pool and proximity to customers and suppliers.
I'm not in love with the point about South Florida's lower costs of living, but I suppose it's true if you're comparing Center City Philadelphia with, say, somewhere like Fort Myers. I probably should have been more specific and said Miami or Fort Lauderdale. That one's on me.
The other points are pretty valid, and I appreciate the caveats the bot gave about each — as well as the counterpoints toward why moving to Philly may end up being better for the business, even if costs are higher.
ChatGPT and Property Management
This one might test its abilities, I thought. Let's try ChatGPT out with property management. What better way than making it triage important tasks? After all, one of the most commonly cited difficulties in property management isn't the management of the property — it's the management of time.
I won't put the full prompt here — it was pretty lengthy — but I provided the bot with five different things going on and asked it to prioritize each. Here are those scenarios:
1. Tenant B wrote me an email saying they have a draft in their part of the building.
2. There's a regularly scheduled commercial building inspection coming up next week.
3. The building owner would like to discuss plans to sell the asset and would like a good handle on necessary repairs to be done.
4. Tenant C left a voice message saying that their heating costs have gone up and that we may need to check the insulation of the unit.
5. The automated entry/exit barrier is occasionally having issues opening.
And here's what ChatGPT responded with. Again, I'll break it down after the response.
Based on the tasks you've provided, it seems that the most pressing matters are:
1. Tenant B's draft: This is likely a critical issue that could affect the comfort and safety of the tenant, so it should be addressed as soon as possible.
2. Tenant C's heating costs: This is also a critical issue that could affect the comfort and safety of the tenant, as well as the building's energy efficiency.
3. Automated entry/exit barrier: This issue could affect the security and accessibility of the building for tenants and visitors, so it should also be addressed as soon as possible.
4. Regularly scheduled commercial building inspection: This is an important task that needs to be completed, but it is not as urgent as the first three tasks.
5. Building owner's plans to sell the asset: While important for the long-term, this task is not as pressing as the others and can be addressed after the more urgent tasks have been completed.
It's also important to keep in mind that while addressing these tasks, if any other urgent issue arises, it should be prioritized and addressed as soon as possible. It is also important to keep the tenants and the building owner updated on the progress of these tasks and any other issues that may arise. Good communication and follow-up is key to keeping tenants and the building owner satisfied.
It may also be helpful to create a schedule or a checklist to ensure that all tasks are completed in a timely manner and that nothing is overlooked. Additionally, it's a good idea to review the building regularly and keep track of potential issues before they become urgent, in this way you can be proactive and avoid any problems that can affect the tenants or the building's operation.
In a perfect world, I'd like to think that ChatGPT should have potentially linked Tenant B and C's problems together, but at least it did suggest I tackle those first. I really appreciate that it recommended — unprompted, I might add — that communication is essential for every single item on the list. I'm also a huge fan of preventative maintenance, and that's something the bot drove home at the end.
ChatGPT and Commercial Real Estate Financing
For my last test, I decided to ask it about financing. That's a pretty complicated topic, especially given the wide variety of loans available for most commercial real estate properties. I gave it a scenario, provided below, and awaited the response.
I am a retail property owner and you are a mortgage broker with 20 years of experience. I have a loan maturing in four months. I'm worried about refinancing, because interest rates keep going up. My property is in reasonably good shape, but vacancy has increased in the past couple of years and I'm worried that will impact what financing I can get. What type of loan would you recommend I use for a $2.5 million refinance of this property?
Here's what it came back with. This one hit a bit off the mark, I think — I'll expand on this after the response.
I would recommend that you consider a commercial mortgage-backed securities (CMBS) loan for your $2.5 million refinance of your retail property.
A CMBS loan is a type of commercial loan that is securitized and sold to investors on the secondary market. These loans are typically larger than other types of commercial loans, making them a good option for properties like yours.
One of the advantages of a CMBS loan is that it can be more flexible than other types of commercial loans, which can be beneficial when your property is facing some headwinds with increased vacancy. Additionally, as a commercial mortgage-backed securities loan, it is less interest rate sensitive than other loan options.
Another advantage of CMBS loans is that they often have longer terms than traditional bank loans, which can help to lower your monthly payments.
It's worth noting that the CMBS market is very dynamic and constantly changing, and that the terms and structure of these loans can vary depending on various factors such as the quality of the property, the creditworthiness of the borrower, the location of the property, among others. It's important to consult with a lender and a professional advisor to determine if a CMBS loan is the best option for your specific property and situation.
Okay, first things first: I don't think many mortgage brokers today would advocate for CMBS financing. Especially not for a borrower concerned about costs above all else. Right now, CMBS loans simply can't compete when it comes to pricing, broadly speaking.
That said, there's an important bit of information to remember: ChatGPT's dataset only goes up until sometime in 2021. Back in 2021, a CMBS loan absolutely wasn't unheard of for a property like this.
Even then, however, it gets a few basic things about CMBS financing incorrect. For one, the creditworthiness of the borrower usually isn't all that important for getting a conduit loan. For another, I wouldn't necessarily call CMBS loans flexible. They generally are pretty rigid, because they need to provide investors with a steady stream of income from loan payments.
For a loan, I'd far and away recommend using a robust financing marketplace to weigh your best options.
So, does ChatGPT have applications for commercial real estate? You bet it does.
Just don't use it blindly. There are some things to be aware of — the bot can provide incorrect data and its dataset ends in 2021 — but if you know about these limitations, you can work around them.
What is ChatGPT and how does it work with commercial real estate?
ChatGPT is a chatbot platform that helps commercial real estate investors and advisors to quickly and accurately answer questions about commercial real estate financing. It uses natural language processing (NLP) to understand the context of a question and provide an answer based on the available data. ChatGPT can provide detailed terms of loan products, such as loan-to-value (LTV) ratios, interest rates, and repayment terms. It can also provide information about capital gains taxes, gross potential rent, and effective gross income. ChatGPT is a great tool for commercial real estate investors and advisors to quickly and accurately answer questions about commercial real estate financing.
What are the benefits of using ChatGPT for commercial real estate?
ChatGPT can help commercial real estate investors by providing detailed information about loan products and tax benefits. For example, when investing in commercial real estate, investors can benefit from paying capital gains taxes, which are generally much less than personal income taxes. Additionally, ChatGPT can provide information about other tax benefits of commercial real estate ownership, such as the benefits of commercial real estate vs. IRAs for retirement. For more information, please visit our blog or view our glossary.
How does ChatGPT help commercial real estate investors?
ChatGPT can help commercial real estate investors by providing detailed information about capital gains taxes and other tax considerations. For instance, ChatGPT can provide information about strategies to minimize taxes, such as taking a smaller salary for tax benefits, engaging in a 1031 exchange, or deferring taxes via investing in the Opportunity Zones program. Additionally, ChatGPT can provide advice on creating an exit strategy and beginning the tax planning process before making an investment.
What types of commercial real estate investments can ChatGPT help with?
ChatGPT can help with a variety of commercial real estate investments, including single-tenant, multi-tenant, shadow-anchored, anchored, unanchored, local shopping centers, regional malls, big-box retail properties, power centers, neighborhood centers, and community centers. We are comfortable financing Class A properties as well as arranging debt for Class D properties in tertiary markets. For every property type and submarket, there is a lender looking to place capital.
How does ChatGPT help commercial real estate agents?
ChatGPT can help commercial real estate agents by providing detailed information about loan products and commercial real estate financing options. For example, ChatGPT can provide information about capital gains taxes and how they affect commercial real estate investments, as well as provide access to calculators such as the GRM calculator to help agents determine the value of a property. ChatGPT can also provide information about loan terms, such as interest rates, loan-to-value ratios, and amortization schedules. Additionally, ChatGPT can provide advice on how to structure a loan to best meet the needs of the client.
What are the advantages of using ChatGPT for commercial real estate transactions?
ChatGPT can help streamline commercial real estate transactions by providing automated advice and guidance. ChatGPT can provide detailed information about loan products, such as terms, rates, and fees, as well as provide advice on capital gains taxes and other considerations for commercial real estate investors. Additionally, ChatGPT can provide a comprehensive guide to the pros and cons of commercial and residential real estate, such as the shorter lease terms associated with residential leases.