Boost financial services M&A benefits with CRE technology

In the rush of a bank or insurance company acquisition, corporate real estate (CRE) data and technology can easily become an afterthought considered only after closing. Yet, streamlining the CRE data and CRE technologies of the two organizations can help accelerate acquisition synergies and mitigate regulatory risks related to facilities.

After closing on an acquisition, the faster your organization can rationalize the CRE portfolio, the sooner cost savings and value will translate into the returns expected by investors and the C-suite. However, this requires proactively planning to successfully implement on day 1. By creating a CRE data and technology integration plan before closing, you’ll be better equipped to leverage data that informs the overall portfolio strategy and accelerates enterprise objectives.

Time is of the essence. In a business-as-usual environment, integrating a spectrum of CRE technologies across two organizations could take several years. Following an acquisition, however, the C-suite, stakeholders and collective employees expect a faster timeline. By investing in upfront planning, you can reduce the CRE technology integration timeline down to 6 to 12 months—and reap the benefits. But putting off planning for later will surely result in missed opportunities for cost savings and process efficiencies.

In a merger or acquisition, what you don’t know can hurt you. Incomplete or inaccurate portfolio data can lead to a lease renewal for space you don’t need. A lack of insight into real-world occupancy could mean underutilized space or not enough of the right kind of workspaces, or space not designed for the fluctuating headcounts of hybrid work. You may wind up accepting poor lease renewal terms because expiration is unexpectedly approaching, thereby limiting your negotiating power.

It may not be obvious that capital projects have been delayed and are now urgent. Project management teams and site leads may not be fully coordinated, so projects end up costing more than necessary. Integrating technology early will allow you to optimize your real estate portfolio based on the most accurate set of workplace and lease data, a powerful tool for decision making.

Real estate data and technology is critical in the acquisition of a bank that potentially is carrying an OREO (other real estate owned) portfolio—typically comprising properties acquired through foreclosure. The acquiring institution can incur regulatory fines for excessive OREO hold times, uncovering a clear picture of the real estate portfolio is an urgent concern. Going into an acquisition, however, the acquiring institution may not know how much OREO the target bank has on its balance sheet.

OREO visibility is especially important if the target company has been an active lender to a property sector experiencing a downturn. For example, the rise of remote work has led to high office vacancies in many markets. Some community banks have been on the frontlines of office mortgage lending and now have accumulated significant OREO through office building mortgage defaults and foreclosures.

CRE technology integration planning also can help ensure that data management meets regulatory compliance standards. For instance, both the Sarbanes-Oxley Act and Basel III standards include real estate data provisions, and financial institutions also must comply with lease accounting standards.

Assimilating corporate real estate technologies when two banks are merging is a complex process that requires careful planning and coordination. Through a sound CRE technology integration program, you can gain a holistic view and make data-informed decisions about the complete combined CRE portfolios. Ideally, your CRE technology integration plan will encompass an assessment of the current state of CRE technology in both organizations; a plan for the future state; and a data integration and governance strategy.

The following are the three major steps in CRE technology integration during an acquisition.

1. Assess the current state of both parties’ CRE technology

With the goal of planning your technology ecosystem, use the due diligence period to learn as much as possible about the current state of CRE technology in both organizations.

For starters, your CRE team and the target company’s team may be using redundant or incompatible systems for lease management, space planning and work-order management. Often, one organization will have a more sophisticated and mature technology environment than the other.

During this phase, you’ll also gain a picture of the various technology-enabled CRE workflows in place. For smooth CRE operations, you’ll ultimately need to adopt standard platforms, with consistent workflows and practices, across the CRE organization. With a pre-close assessment, you can begin to anticipate the level of investment that will be required to optimize the CRE technology ecosystem across the organization.

2. Create a technology integration strategy and roadmap

In advance of closing, the CRE integration team will need to envision the future state of the CRE technology ecosystem and a roadmap to achieving it. For example, if each party uses a different work-order management system, you’ll need to decide which system and features to retain and possibly upgrade, or eliminate.

For example, your organization may use a multi-module ARCHIBUS platform, while the target company uses a computerized maintenance management system with limited functionality. Or, your organization may have implemented a smart building management platform, while the target institution has not adopted any remote monitoring technology.

It's crucial to involve key stakeholders from both organizations, including IT, compliance and CRE operations teams, in a comprehensive approach to the integration planning process. Other important aspects include a realistic timeline for integrating numerous different systems and how the integration will affect workflows and processes. You will need to create budget projections for technology investments, including decommissioning some systems and adding new ones.

Don’t overlook the importance of change management and training-for-adoption in your technology integration plan. Creating a CRE culture of embracing technology may require upskilling and instilling a new mindset toward leveraging technology to reduce operating costs, improve compliance and create better customer and employee experiences.

3. Establish a data strategy

In a merger or acquisition, each organization may have completely different data formats and data governance practices. Access to accurate data is essential to understand how space is being used, which workplaces are under- or over-utilized, which facilities are redundant or functionally obsolete, whether certain leases could be terminated, and other portfolio details.

One organization may be highly disciplined in its use of data, the other less so. Data definitions and abbreviations may be inconsistent even within a single database. Something as minor as “SF” versus “SqFt” makes data integration impossible, if “square footage” refers to rentable square footage in one context and total square footage in another.

Poorly planned CRE data consolidation can lead to errors in financial reporting—and create compliance risk. Data governance is particularly important in the financial services sector, where data must be managed in compliance with Sarbanes-Oxley, Basel III, lease accounting standards and other regulatory frameworks. Inconsistent data formats, outdated records or missing information can complicate migration and require labor-intensive remediation.

While it can be tempting to simply store data in a data warehouse to be addressed at an unspecified future time, leading practice is to create a technology integration roadmap with a strategy for creating a “single source of truth” CRE data repository. Having a realistic CRE data management plan in place will not only help the organization leverage its CRE data toward achieving synergy goals, but will also reduce real estate-related compliance risks.

One goal of the current state assessment phase will be to understand current data sources, dependencies and governance processes. In the planning phase, you can establish data governance practices aligned with your organization’s IT business-as-usual standard processes for maintaining data compliance.

Creating an accurate, integrated data repository can be a resource-consuming process, especially if an organization lacks technologies for standardizing and validating data. The data integration plan should encompass the roles, tools and processes needed to establish standard data formats and ensure data quality over time, and recommend investments to strengthen data governance and compliance.

Given the compressed timeline of the due diligence period, your CRE team will be hard-pressed to manage day-to-day facility services while also addressing integration planning. One way to ensure that you have a clear technology and roadmap in place before closing is to partner with a CRE technology advisor.

Your advisor can help assess your current environments, provide recommendations for your future state and assist in creating a realistic CRE technology integration roadmap. Your advisor also will help you establish key performance indicators (KPIs) for tracking technology integration outcomes after the transaction closes.

One important KPI is total cost of ownership, or TCO. That is, the TCO following a successful CRE technology integration program should be less than the TCO of operating parallel systems. A related KPI is the reduction in the number of applications or systems, which translates into reduced cost and complexity. User adoption is another standard KPI to indicate how well the CRE team is optimizing use of available technologies.

For even the best-equipped team, merger-related CRE technology integration is a complex process. Augmented with the right expertise, tools and strategy, your CRE team will be able to add material value to the transaction, contribute to synergy savings—and elevate its role in the larger organization.