Stop Navigating with Bad Data

Stop Navigating with Bad Data

2018-04-25

Years ago, a game show took the U.S. by storm. With a unique voice and striking sarcasm, the phrase “You are the weakest link,” reverberated among everyday conversations, each time stemming from the concept of systems or teams only being as strong as “The Weakest Link.”

Today’s commercial real estate data systems are facing a similar challenge. As (RE)meter’s recent report suggests, rating agencies are facing major data issues that can lead to inaccurate risk assessments. Let’s look at how far off and detrimental these ratings can be.

Using NAICS as a test case, (RE)meter found that some of the major data issues include sector level non-granular data, use of sample size datasets versus all establishments, and use of regional or national datasets as opposed to MSA, County, or Zip datasets.

For example, in regard to net income margin analysis, the 35 industries that comprise sector 52 have a wide net income percentage range from 2.9% to 92.6%. This can translate into feast or famine in the same sector. By incorporating data from a smaller geographic circle, such a county or zip code, the data would likely reveal a more accurate range of net income margins in a particular industry.

Another road to unreliable data occurs when rating agencies measure specific firms against a sector rather than an industry. When making leasing decisions, property owners and managers are wise to rely on the most relevant information available. (RE)meter found in its NAICS test case, that measuring a tenant, Tenant ABC, for example, against its sector skews the risk rating abnormally below average. The end result of this inaccurate risk assessment revealed a 40% error, leaving the property owner in a position of not really knowing his tenant.

With the commercial real estate industry continuing to experience volatility across various sectors, now more than ever, property owners and managers are finding new ways to navigate through the ebb and flow. One thing remains the same, however: Leasing decisions are detrimental to profitability. Data must be based on real-time, accurate analysis as margins run increasingly narrow.

(RE)meter continues to offer the commercial real estate industry a reliable and thorough system of determining risk assessment, gathered from government-certified data presented in an easy-to-understand (RE)port. A sample Industry (RE)port demonstrates the breadth and depth of (RE)meter’s analytics regarding industry trends in light of a specific tenant’s business performance, business risk factors and lease risk factors. The overall score helps guide property owners and managers in lease underwriting and portfolio strategy.