How One CRE Giant Is Uncovering Hidden Real Estate Gems Using AI

In a market as complex and competitive as commercial real estate (CRE), finding undervalued assets often feels like searching for a needle in a haystack. For BGO, a global real estate investment management firm with $89 billion in assets under management, the key to uncovering hidden opportunities lies in the use of artificial intelligence (AI) to revolutionize their investment research models.

AI-Powered Insights: The Evolution of Investment Strategy

John Carrafiell, co-CEO of BGO, has been immersed in real estate for over 40 years. Yet, despite his extensive experience, he found himself frustrated by the stagnant methodologies used to analyze investment opportunities.

For decades, the industry’s research and data techniques remained largely unchanged everyone seemed to be using the same data, applying the same models, and arriving at the same conclusions. This lack of differentiation led Carrafiell to ask a fundamental question: How can we outperform the competition?

The answer, he discovered, was to leverage data science and AI to build more precise, tailored models that could reveal the best and worst market opportunities. BGO’s breakthrough came when they analyzed all of their firm’s past deals over the last 20 years, inputting the data into a computer model without the traditional human biases. The results were striking: outperformance or underperformance in real estate investments was largely determined by one key factor the local market chosen for investment.

While the phrase “location, location, location” has long been a tenet of real estate success, BGO’s findings took it to the next level. The focus shifted almost entirely to local market fundamentals, rather than property pricing or national economic trends. This data-driven insight helped BGO pinpoint underappreciated areas for investment that others might overlook.

Breaking the Mold with Data Science

Carrafiell’s frustration with outdated methods led BGO to create a cutting-edge model that focuses on local market data analyzing everything from demographics to supply trends in specific locations. Unlike traditional methods, BGO’s model factors in thousands of data inputs, many sourced from public records and private data providers like telecom companies. By feeding this vast amount of information into AI algorithms, BGO’s model increased the velocity and volume of data analysis, providing a much clearer picture of market potential.

“We’ve taken thousands of data inputs, including free government data and premium sources, and we’ve found the key to predicting what works,” says Carrafiell. “We know it’s accurate because we backtest it rigorously.”

A Case Study in Las Vegas: When AI Beats Conventional Wisdom

One standout example of BGO’s success with this model is its industrial development investment in Las Vegas, in partnership with Northpoint Development. Despite many traditional data models suggesting it was a mediocre investment, BGO’s AI-powered model indicated otherwise.

According to Carrafiell, conventional research suggested Las Vegas would underperform, with the returns expected to be average at best. However, BGO’s model forecasted exceptional performance, and the results have been nothing short of impressive.

“We underwrote the investment based on $5.88 per square foot in rents, but we’re seeing rents in the $9 per square foot range,” says Carrafiell. “That’s rare in commercial real estate it’s not luck, it’s strategy.”

So, what made the difference? BGO’s model recognized that the Inland Empire of California long a logistics hub was becoming prohibitively expensive. It also analyzed logistics routes, discovering that companies could save 60% on total costs by moving operations to Las Vegas, despite the extra two-hour drive.

The result? A highly successful investment that outperformed expectations, driven by the data-driven insights that BGO’s AI provided.

Expanding the Data Model for Future Growth

This innovative approach has extended beyond Las Vegas. BGO has used similar analytics to fuel investments in Florida and the Rust Belt, where the AI model has consistently identified opportunities for strong returns.

“We believe our performance has materially improved because of this model,” says Carrafiell, reflecting on the success. However, he acknowledges that even the most advanced AI models can’t predict every variable. “For example, if Boeing decides to leave Seattle, the model can’t predict that kind of idiosyncratic shift.”

Despite the challenges, Carrafiell remains confident that AI has significantly improved their ability to spot undervalued assets. Going forward, BGO plans to further enhance the model by incorporating asset allocation across different commercial real estate sectors, helping to inform even broader portfolio decisions.

AI as a Critical Tool for Real Estate Investing

While the AI model has undeniably enhanced BGO’s ability to identify profitable investments, Carrafiell emphasizes that it’s not just about the technology. “AI is an accelerator and enhancer that allows us to do more,” he explains. “But at the heart of it, it’s still all about data science.”

At BGO, the AI model has become so integral to the firm’s investment process that their dedicated data science team works directly alongside the CEO and acquisitions team. This integration of cutting-edge technology into the decision-making process ensures that every investment is backed by the most precise, data-driven insights available.

Carrafiell’s experience with AI in real estate highlights the future of the industry. While traditional methods will always have a place in investment strategies, it’s clear that data science and AI are setting the stage for the next generation of real estate investment. As BGO’s success proves, technology is no longer just a tool it’s a game-changer.

Looking Ahead

As the possibilities for AI in commercial real estate continue to expand, the future looks promising for firms like BGO, which are harnessing the power of data to unlock hidden opportunities. While the technology still requires human oversight and adjustment, its ability to accelerate and refine investment strategies is poised to shape the industry in ways we’re only beginning to understand.

In the ever-competitive world of real estate, those who can successfully integrate AI and data science into their decision-making processes will be better equipped to identify undervalued assets and capitalize on them, leaving their competitors in the dust. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.