By Andrew Hanz

 

In an industry where a project typically takes years and often millions of dollars to complete there is little room for error. That means embracing all tools available to maximize the probability the project will be well received. Historically, developers have relied on simple 2-D floor plans and renderings to gauge interest and potentially drum up some pre-leasing and pre-sales. However, most end-users need to see the finished project with their own eyes to get comfortable signing up for a huge commitment such as executing a long-term lease or an outright purchase.  Studies have shown that 75% of people can’t visualize what an empty space would look like when built out or look at a 2-D floor plan and develop an accurate 3-D image in their mind.

If you are a real estate developer you are in luck, new virtual reality “VR” technology is currently being fine-tuned so that users can get an immersive experience for a project that has yet to be built. You have probably seen something of the sort at an electronics store or on a tv commercial where a person puts on a headset and travels into a three-dimensional, computer-generated environment which can be explored and potentially manipulated. Think about the possibilities of this VR technology when applied to commercial real estate.  A developer could create a virtual model showcasing their vision for a project and allow local and remote users to tour the project at a moment’s notice. On these virtual tours, users could change design elements such as altering furnishings, manipulating interior finish-outs, or completely changing the entire floor plan. This life-like experience could be used as a powerful sales tool and translate to shortened sell-out periods and a reduction in holding costs for the developers. VR technology could also be used as an effective leasing tool for retail, office, and multi-family projects to secure pre-leasing, as well as leasing up vacant space for existing projects. Not only could tenants remotely tour properties, but the VR model could be tailored towards each tenant’s individual criteria.

As a financier who deals with sources of capital on a daily basis, being able to obtain pre-sales and pre-leasing is the holy grail of development and makes financing projects possible. The ability to prove to a lender there is demand for a developer’s vision is key, and directly translates to more loan proceeds, a lower rate, and potentially partial liability. Typically, lenders are looking for committed pre-sales (condos, townhomes, lot deals) in an amount equal to their loan exposure, so each pre-sale directly relates to more leverage. When it comes to ‘for lease’ development deals, lenders are looking for heavily risk mitigated projects with pre-leased income to cover the interest-only debt service on the entire loan amount. Thus, using VR as a tool to amplify marketing efforts could pay huge dividends in obtaining attractive financing.

Currently, the price to build a VR model has been the prohibiting factor in terms of widespread use, as vendors can charge anywhere from several thousand dollars to upwards of $50,000. However, as the technology behind VR is continually evolving, with tech companies testing, refining and developing the platforms and features, the use of the technology will certainly become cheaper and translate to more users. According to Goldman Sachs, the VR market will be north of an $80 billion dollars industry by the end of 2025, and could potentially revolutionize how properties are marketed, transacted, and analyzed.

If you would like more information about virtual technology in commercial real estate or would like assistance securing financing, please contact Andrew Hanzl at ahanzl@metcapital.com. The Author, Andrew Hanzl, is a Senior Analyst in the Dallas Office of Metropolitan Capital Advisors.

Follow MCA on LinkedIn.