Redefining AI: How Technology Enhances Real Estate Investments

I often hear people say: data is the new oil.

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Artificial Intelligence (AI) is moving into more and more areas of the economy, and the fuel for AI is data - and lots of it.

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It’s incredible, and also a bit scary, to think about all the possibilities for AI in the future, and also the downside risks.

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Most of the pessimists I hear are not worried about the plot from the movie Terminator becoming real and the Skynet software taking over the world. They tend to worry about jobs, and the turbulence that creative destruction brings.

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I understand their fears about job security and the threat to the economy. But I also am very optimistic about human ingenuity and our ability to persevere. Past innovations, such as the printing press, steam engine, factories, computers… they all created tremendous upheaval, but they also unlocked tremendous opportunities.

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As I look at AI’s potential in real estate. I see many more opportunities than threats.

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Last year, Zillow’s AI real estate investing experiment blew up, spectacularly. Their iBuying software consistently overpaid for properties, causing hundreds of millions of dollars of losses.

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I believe this failure proved that AI is nowhere near being in a position to make property acquisition decisions, beyond perhaps small niche plays. There’s simply too many variables to evaluating a property’s value that are not “digitized”. And if something isn’t digitized then the AI program cannot factor that information into their recommendations.

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Real estate properties are all unique. Price spreads are wide, and there aren’t that many transactions. Even great algorithms are going to struggle under these conditions.

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Every real estate deal depends on a thousand subtle details. Local politics, zoning flexibility, and the new shopping center that’s about to be built down the street… these can make a huge difference in the long-term value of a property. So does a deep understanding of tenants and their intentions. Computers are not well positioned to judge these things today.

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Great investing still requires deep expertise and access to subtle, contextual data that doesn’t get captured in any database. For years, I have made it a habit to personally visit every single property that Alliance is buying. There is simply no substitute for that first hand experience.

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While AI can’t make good real estate acquisition decisions on it’s own, it can bring value in other areas of our operations and elsewhere in the real estate ecosystem.

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Commercially available AI tools can help model insurance risk, counterparty risk, demographic change, and price trends. Data and analytical tools offer savvy investors truly useful insights into risks and opportunities.

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As a professional investor, I am excited about the ways that data tools can help Alliance find the best deals. I’m watching the space closely so we can adopt new tools as they become available.

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AI is changing the game, and not because it is replacing experts. We still need good old fashioned human judgment, and probably will for a long time.

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