Geographic Technology in Real Estate:
A Technology Assessment Report
Matthew L. Cypher, David Rardon & Yimin Ye
I. Introduction
Real estate is defined by the Barron’s Dictionary of Real Estate Terms as the “land and
everything more or less attached to it. Ownership below to the center of the earth and
above to the heavens.” This definition clearly conveys the geographically fixed nature of
real estate and the inherent risk associated with this characteristic that is not found in
other financial assets such as stocks and bonds. It is the identification and quantification
of these risks that dominates the real estate decision. Regardless of whether a large
insurance company is determining if it will insure a “trophy” office property in New
York City or Starbucks debating the financial feasibility of a store in a new shopping
center, identification of risk is central to the decision-making process. The advent of
geographic information systems (GIS) has allowed these decision-makers to better
analyze various risk components and draw more informed conclusions.
The purpose of this assignment is to provide an analysis of GIS applications in the real
estate industry. The primary focus is on the two most widely used applications of the
technology in commercial real estate sector; (1) commercial lending and (2) site
selection; however a review of the residential real estate sector, which is in the early
stages of implementing GIS, is also included.
II. Commercial Lending Institutions
Commercial real estate lenders are extremely concerned with the physical stability and
health of a property serving as collateral for a loan they have originated. Should the
collateral be destroyed in some manner through either Acts of God (hurricanes, tornados,
floods, etc.) or by an instance of terrorism, the lender will likely suffer a financial loss
due to the borrower’s inability to repay the mortgage.
The lender is also concerned with the strength of the particular market where a
prospective borrower is located when underwriting a loan. Markets with declining
economic health can lead to a situation where the borrower is no longer capable of paying
the monthly mortgage payment. Under this scenario, a lender will likely acquire the
property through foreclosure and subsequently sell it for an amount that is hopefully
equal to the outstanding loan balance. Should the sale price be less than the outstanding
loan balance due to weakening market fundamentals, the lender again suffers a loss.
The scenarios presented above suggest that commercial lending institutions have a need
for GIS as a risk management tool during the underwriting process as well as after a loan
has been originated. An analysis of ESRI and MapInfo GIS risk management products
was conducted as these two vendors have the most advanced GIS software geared toward
the business community. Care has been taken not to include substantial discussion of
each vendor’s market analysis software (which is used extensively in the mortgage
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underwriting process) in the commercial lending section as this will be the focus of the
site selection component of the paper.
From a pure risk management perspective, MapInfo is more advanced than ESRI.
Currently, MapInfo has three products that focus on the analysis of risk from the
perspective of property insurance providers. Although the focus of this section has been
on commercial lending, it is indeed an allied field to property insurance given that both
entities are concerned with the physical health of a structure. The similarities between
industries have allowed commercial lending institutions to utilized property insurancebased GIS software. A discussion of the differing products provided by ESRI and
MapInfo is provided in the Appendix A.
III. Site Selection
There is an old adage that real estate is about three things: location, location, and
location. While in reality it is somewhat more complex than that, there is no denying the
fact that the choice of a location in any real estate decision can be the determinant of
success or failure. GIS has significantly improved the site selection process by enhancing
the predictive abilities of a real estate market analysis. The real estate market analysis
serves as the foundation for any site selection by thoroughly analyzing the supply and
demand factors in a particular market. This process mitigates potential losses that result
from a poor location decision, and maximizes potential profits when an optimal location
is chosen. Therefore, real estate professionals consider site selection as an important
aspect in the real estate decision making process and GIS has proven to be a valuable tool
in this analysis.
While the importance of site selection is irrespective of property type, geographic
location or tenant mixture, the retail sector has established itself as the leader in GIS
applications since McDonald’s Restaurant Corporation first began to employ GIS in the
1980’s for determining where to locate its fast food outlets. For this reason, the major
applications have a strong focus on the retail sector, which is exhibited in this software
analysis.
The site selection process is concerned with four primary tasks:
1) Trade Area Definition – The trade area is the geographic boundary from which most
of the customers will come. A trade area may be determined by drawing rings or buffers
around a location, by calculating drive times or drive distances based on the road
network, or using predictive models to determine the concentration of customers. This
task serves as an important input to the following two tasks of supply and demand
analysis, but also helps to avoid cannibalization of existing sites resulting from
overlapping trade areas.
2) Competitive Supply Assessment – This task involves analyzing the supply of
competitive uses that could impact the performance of the site(s) in question. For
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example it may involve identifying all of the locations of a competitor, or available
comparable sites where a competitor may locate in the future.
3) Demand Estimation – This task is concerned with understanding the economic,
geographic, and social factors that influence the demand the specific real estate use. This
is often accomplished by mapping simple demographic data (actual counts or estimates)
such as population, income, and age to identify areas with the right mix for success.
Sometimes, however, more information is needed to determine success than can be
obtained from basic demographics. In such cases surveys may be conducted and/or other
commercially available market data may used to supplement the demographic
information used to evaluate demand.
4) Reporting and Presentation of Results – In the end, the analysis results need to be
presented in a manner that is comprehendible and useful. This typically involves the
generation of a map or series of maps that highlight the conclusions of the analysis.
These maps may also contain other useful information. For example, a digital ortho
photograph may be included to help communicate the surrounding land uses.
The level and depth of analysis for any of these tasks may vary from simple to complex,
depending on the requirements of the task at hand. For example, a simple analysis for
locating a retail store might involve mapping the general population density along with
the locations of existing and competitors sites to identify any gaps or holes in coverage
where a location might be successful. On the other hand, a more complex analysis could
include a detailed trade area definition using sophisticated models, analysis of
competitive performance, and detailed demographic analysis to estimate demand now
and in the future all presented in a multimedia presentation.
Several GIS applications exist that can be used in the site selection process, and for the
purposes of this analysis, have been grouped into the following three categories: 1)
Standard applications from the market leaders ESRI and MapInfo, 2) Specialized
applications from these same vendors, and 3) Specialized applications compatible with
the standard applications. All of the products are summarized in the tables contained in
Appendix B.
Standard Applications from ESRI and MapInfo - MapInfo Professional and the
ArcView products are both very capable of performing the basic site selection tasks,
although in many cases, the data preparation may be more complicated or take more time
than when using the specialized applications. MapInfo is the more commonly used
product for site selection in the real estate industry, however this appears to be primarily
due to the marketing efforts of MapInfo and industry preferences rather than any
particular capability differences, as both products have similar features.
Specialized applications from ESRI and MapInfo – Both companies offer specialized
products that are very useful in site selection tasks, ESRI with ArcView Business Analyst
and MapInfo with both TargetPro and AnySite. These products work in conjunction with
the standard products to provide tools to perform many of the previously described site
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selection tasks (trade area definition, demand estimation, etc.) more effectively and
efficiently than with the standard application alone. The ArcView Business Analyst
product combines data, such as business data, shopping center data, and demographic
data, with tools, such as store prospecting, customer prospecting, and store market
analysis to perform detailed site selection tasks. MapInfo now offers two products with
site selection tools since AnySite was obtained through a recent acquisition of Thompson
Associates, a firm that specializes in using predictive analytics to perform retail market
research. The TargetPro product is marketed based on its powerful demographic and
segmentation capabilities for marketing while AnySite is positioned more specifically for
site selection and location based analysis. MapInfo’s strategy for the future of these two
products is unclear, but there is some speculation that they may be combines in a future
release.
Specialized Applications Compatible with Standard Applications – Two additional
site selection products that are not provided by ESRI or MapInfo are SitesUSA’s REGIS
product and PhotoMapper provided by AirPhoto USA. The primary benefit of these
products is that they provide the capabilities of the standard GIS products along with a
few additional tools and some data, but have a simpler user interface focused on
accomplishing specific tasks. The advantage is that they are easier for users to learn and
use than the standard applications, but as a result are more focused and limited in their
capabilities. REGIS (Real Estate GIS) is built on top of MapInfo and provides an
intuitive interface for less sophisticated users to produce maps displaying information
such as competitor locations and demographics and included add-ons to perform
additional analysis such as drive time calculation, market optimization, and trade area
definition. PhotoMapper provides an easy to use interface for combining raster images
and map data. This allows less sophisticated users to produce aerial photographs that can
be useful in a report or presentation.
IV. Residential Real Estate Applications
Unlike the commercial real estate industry, which has been using GIS extensively for
several years, the adoption and development of GIS in residential real estate is still in a
very early stage. However, according to the National Association of Realtors, the major
trade association for the industry, there is a growing awareness of GIS technology in this
business community.
One of the first and most common uses for GIS in the residential real estate sector
involves linking it with the Multiple Listing Service (MLS) database. MLS is a
computerized network of information about homes on the market and is the leading
source of information for Realtors in the buying and selling process. By linking GIS
applications to this database, Realtors could access additional geographic information
such as routing maps, aerial photos, flood maps, etc. to help in the sales transaction
process. Neither of the market leaders (ESRI, MapInfo) is providing this capability,
although ESRI could be soon. In the meantime, several other vendors are providing such
a link between MLS and GIS including: Northwest GeoGrafx, REMAP Corporation, and
Waypointe Technologies Inc.
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Northwest GeoGrafx’s Latitude program allows agents to type in the features their
clients are looking for in a new home and display detailed maps and textual information
(e.g., listed price, address, number of bedrooms and bathrooms, age) to pinpoint the
homes that most closely match the description. Latitude is already in use in a number of
realtor offices. REMAP Corporation has developed two products: IRIS and ADDMAPS. IRIS is an on-line system that integrates MLS information into a GIS
environment containing area maps, census demographics, tax record data, and photos.
The system also allows the user to perform desktop publishing tasks and prepare custom
reports for clients. ADD-MAPS is a stand-alone product that provides much of the
functionality of IRIS but without constant contact with the MLS. Waypointe produces
Navigate, a software application that will interface with the MLS and provide custom
comparative market analysis (CMA) maps, custom touring and showing maps, MLS
photos, and custom demographic information. It allows the real estate professional to
locate and display properties in the MLS.
In addition to these applications, some real estate firms are developing their own
proprietary computer systems, with GIS as a prominent feature, in an attempt to operate
more efficiently, attract more customers, and complete more transactions. GIS
applications also serve as an underlying component in a number of residential real estate
sites such as cyberhomes.com and Realtor.com in order to help potential home buyers
with their search.
While these cases represent only the initial steps of incorporating the power of GIS in the
residential real estate industry, potential does exist for a number of other uses, including:
defining market territory, locating potential home buyers, locating homes for buyers,
optimal routing of home tours/caravans, and creating home listing presentation.
V. Conclusion
The geographically fixed nature of real estate has provided for significant application of
GIS technology in a large number of sub-sections of the real estate industry. From the
decision to lend money for the construction of a new skyscraper in Chicago, to the choice
between the corners of a highway intersection for a new gas station, GIS plays a crucial
role in allowing the key participants to make more informed decisions. Judging from the
incorporation of GIS applications by today’s real estate companies, the importance of this
tool will only continue to expand.
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Works Cited
Castle, Gilbert H. GIS in Real Estate: Integrating, Analyzing, and Presenting Locational
Information, Appraisal Institute, 1998.
Friedman, J.P., J.C. Harris and J.B. Lindeman, Barron’s Dictionary of Real Estate Terms,
Fifth Edition, Hauppauge, NY, Barron’s Educational Services, Inc., 2000.
Thrall, Grant Ian, Business Geography and New Real Estate Market Analysis, New York,
Oxford University Press, Inc., 2002.
Web Sites Cited
www.esri.com
www.mapinfo.com
www.sitesusa.com
www.airphotousa.com
www.cmcus.com
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Appendix A: GIS Applications for Commercial Lending Risk Management
Premise
Function(s)
Application to
Real Estate
Lending
Software
Shortfalls
Premise
Functions(s)
Application to
Real Estate
Lending
Software
Shortfalls
Premise
Function(s)
Application to
Real Estate
Lending
Software
Shortfalls
Table One – MapInfo Insurance Decision Solution Suite (IDSS)
IDSS is a completely web-based application focused on streamlining the underwriting
process employed by the property & casualty (and automotive) insurance industry.
IDSS is equipped with the following primary functions:
VI.
Address Query – locates a particular point on a map through an address
and provides latitude and longitude coordinates,
VII.
Underwriting – Considers the location of the prospective customer
relative to flood zones, EPA Superfund sites, weather patterns (tornado
& hurricane paths) and county/MSA designations
VIII.
Policy Analysis, (4) Find Nearest (business or retail establishment) and
(5) Call Center (which locates the nearest authorized repair shop to the
claimant) – relate exclusively to the insurance industry and have no
application to real estate lending.
The primary value of this software is the Underwriting function. This provides the
lender the ability to evaluate the property’s relationship to various natural and
manmade hazards. Most lenders are acutely aware of natural hazards but have not
employed software to specifically measure the proximity.
The primary shortfall of this software as it relates to commercial lending is the lack of
incorporated market analysis functions. Natural hazards are important, but the
strength (or weakness) of the market is equally important.
Table Two - MapInfo RiskReview
This is also a web-based application that allows property insurers to evaluate the risk
before and after making the decision to insure a structure.
RiskReview possesses a function known as AlertTrack that allows the insurance
company to input critical data thresholds that will trigger an alert when a particular
property exceeds or falls below a particular threshold.
The inclusion of thresholds that signal an alert when violated allow lenders to monitor
the loan following origination. The profitability of property types and health of
markets fluctuate with the business cycle. Being able to anticipate a lender’s
exposure to weakening markets/property types will allow a proactive approach to
ensuring the loan does not default.
The primary shortfall of this software is counter that of the IDSS in that is does not
possess the ability to include natural hazards data.
Table Three - RiskDataInfo
This software is an all-inclusive weather analysis tool that provides the ability to
evaluate weather-related risk.
MapInfo has created an application based upon data collected (and updated) from
various weather entities that provide historic data on earthquakes, hail and wind
storms, and tornados. This application translates the data into a spatial analysis tool
for risk managers who wish to determine the probability that a storm will affect a
property.
When underwriting loans in high risk areas (California, Florida, Oklahoma), a tool
such as this will better inform them of the risk of loss associated with the collateral
due to a weather-related event.
MapInfo has created a situation whereby the commercial lender is required to obtain
multiple pieces of software to fully measure risk. As with IDSS, no market analysis
functions are present.
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ESRI’s only “pre-packaged” risk assessment-type product is known as ArcWeb Services and is analyzed
in the following table.
Premise
Function(s)
Application to
Real Estate
Lending
Software
Shortfalls
Table Four - ESRI ArcWeb Services
This software package provides the user the ability to quickly generate maps and
reports without having to accumulate and maintain data.
ArcWeb Services provides a number of functions including, (1) Address Finder, (2)
Address Manager, (3) Proximity, (4) Query, (5) Route Finder and (6) Report Finder.
All functions allow a user to geocode addresses, evaluate issues of proximity, query
the data for points of concern and format the findings into a report. Business Analyst
Online and Flood Map Report are two other examples of ArcWeb Services Solutions
that are included.
Lenders would be able to conduct basic risk assessment utilizing this software. The
ability to geocode addresses and evaluate the impact of proximity is extremely
important to the loan origination process. The presence of Business Analyst Online
and Flood Map Report would significantly help the lender underwrite the market and
determine if a prospective property is in a flood zone. The biggest advantage of this
software is that it meshes a market analysis capability with a flood report (which is
arguably the most important piece of data related to natural hazards). Although less
sophisticated in the area of weather patterns, the combination of market and flood
reports is substantial.
ESRI’s ArcGIS possesses the ability to create applications similar to those provided
by MapInfo, but the user would be required to generate these applications, accumulate
and maintain the necessary data, while IDSS and RiskReview are web-based
products that are maintained by MapInfo. ArcWeb Services lack several of the
applications provided in MapInfo, such as analysis of weather patterns.
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Appendix B: GIS Applications for Site Selection
Premise
Description
Application to Site
Selection
Software
Shortfalls
Premise
Description
Application to Site
Selection
Software
Shortfalls
Premise
Description
Application to Site
Selection
Software
Shortfalls
Premise
Description
Application to Site
Selection
Software
Shortfalls
Premise
Description
Application to Site
Selection
Software
Shortfalls
ESRI ArcView
Market leading GIS “standard” application.
Full featured application GIS application for visualizing, managing, creating, and
analyzing geographic data.
Provides features that allow for many of the site selection analysis tasks such as
simple trade are analysis, competitive supply assessment, demand estimation, and
report and presentation preparation.
Does not provide for more sophisticated trade area analysis such as drive time or
modeling without add on tools. Requires more data preparation that specialized tools.
ERSI trails MapInfo in current real estate industry installations.
MapInfo Professional
Market leading GIS “standard” application.
Full featured application GIS application for visualizing, managing, creating, and
analyzing geographic data.
Provides features that allow for many of the site selection analysis tasks such as
simple trade are analysis, competitive supply assessment, demand estimation, and
report and presentation preparation. More commonly used than ESRI in the real
estate industry.
Does not provide for more sophisticated trade area analysis such as drive time or
modeling without add on tools. Requires more data preparation that specialized tools.
ESRI Business Analyst
Specialized application extension available in conjunction with ESRI products.
Provides advanced analysis tools and an extensive library of data from industry
leading data providers to help make better business decisions.
Additional tools and data provide for easier site selection analysis including: store
prospecting, trade area modeling, drive time analysis, and market penetration analysis
ESRI products, in general, are not as prevalent in the real estate industry.
MapInfo TargetPro
Specialized application extension available in conjunction with MapInfo products.
A flexible demographic, segmentation, and analysis solution for better business
intelligence
Additional tools and data provide for easier site selection analysis with particular
strengths in areas of customer and demographic analysis
Very powerful, but can be more complicated to use than other specialized application
extensions. Some confusion may exist about the difference between MapInfo’s
TargetPro and AnySite products.
MapInfo AnySite
Specialized application extension available in conjunction with MapInfo products –
acquired through recent acquisition of Thompson Associates.
A decision support tool designed to provide analysts and marketers insight into their
location, customer, and market research
Additional tools and data provide for easier site selection analysis with a stronger
emphasis on location analysis than MapInfo TargetPro. Serves as the delivery
platform for MapInfo-Thompson predictive analytics specialized site selection
analysis services
User interface slightly more limited in flexibility than other market leader specialized
applications. Some confusion may exist about the difference between MapInfo’s
TargetPro and AnySite products.
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Premise
Description
Application to Site
Selection
Software
Shortfalls
Premise
Description
Application to Site
Selection
Software
Shortfalls
SitesUSA REGIS
Specialized application that works in conjunction with MapInfo Professional provided
by an independent vendor
Real Estate Geographical Information System (REGIS) - a complete desktop mapping
solution for commercial real estate and retail site selection.
Product includes an easy to use interface allowing less sophisticated uses to easily
create maps for site selection analysis. Add-ons available to perform additional
analysis such as drive time calculation, market optimization, and trade area definition
Easier user interface limits some capabilities available in other GIS applications
AirPhoto USA PhotoMapper
Specialized application that works in conjunction with various GIS applications
A data viewing product that facilitates the usage of raster imagery and GIS data to
clients that otherwise may not have access to it
Product allows for simple incorporation of geographic data with aerial photos which
can be useful in communicating the results of site selection analysis
Easier user interface limits some capabilities available in other GIS applications