Over the last 6-8 weeks, the Advisory has been reviewing the trends that were identified at Realcomm 2004 in San Francisco. In these dispatches, we have focused on the issue of Real Estate and Technology primarily from the Real Estate professional's perspective. For example, Corporate Real Estate, Property Management, Owner/Developer, Brokerage, Commercial Real Estate Law, and so on. This Advisory will focus specifically on the trends relating to the companies that are providing the technology and solutions to the Commercial Real Estate industry.

It has been a very interesting industry to watch develop over the last 6 years. Starting with Realcomm 1999, our founding year, we had approximately 40 vendors represented at the conference. Most of the initial firms that participated came from the property management sector, which, at the time, was the most mature in the industry and included companies such as Yardi, MRI and Timberline. There were also a host of other firms that represented more Brokerage-centric solutions. This was the first time the industry saw companies such as LoopNet, CoStar and Property First. We also had only one document management company, the Millenia Group, which was a clear indicator of how new this technology was to our large and paper-intensive industry.

Over the next couple of years, our industry, like all others, experienced the craziness of the dot-bomb phenomena. In 2000 and 2001, the vendors grew to almost 160 and included companies which are long gone, such as Real Centric, Realty-IQ, Comro, Broadband Office and many, many more. We estimate that almost 2 billion dollars of venture money was invested and lost in this very short period of time. Another interesting thing about this period is that there were very few legitimate business propositions being introduced and the majority of discussions were centered on who was on the board and how much money was raised.

If there was ever a meltdown period for our Real Estate Tech Sector it was 2002 and 2003. Both these years created a very defensive, skeptical, if not downright hostile attitude by the Commercial Real Estate industry toward technology and the Internet. This was a very painful period that resulted in very little positive activity from the community. The irony that became apparent only recently is that even though the fair weather fans ran away quickly, the true believers of automation kept moving at a very steady and deliberate pace. This was, in fact, a very interesting time.

This brings us to 2004, which we feel was a milestone year. Not only did we see the conference stabilize from an attendee and vendor perspective, we also saw a very interesting change in the program. We were no longer talking about wiz bang technology, cool gadgets or futuristic business paradigms. Instead, we saw the conversations directed at realistic, compelling business discussions. The conversation had changed from technology to business, with great results. This, in our opinion, is the beginning of the next phase of adoption, which should last at least 5-7 years and represents the beginning of a very large and impactful business paradigm. The following represent the trends we saw emerge for the Real Estate Technology Vendor sector at Realcomm 2004:

• Overzealous business plans have long disappeared
• The high flying, free spending hay days have been replaced by prudent business planning and execution
• The discussions are not about technology anymore but are more focused on business results
• More vendors are talking about Return on Investment (ROI) and their products
• The vendors who survived the dot.com era are maturing and getting stronger each and every day
• We should continue to see mergers and acquisitions among firms creating stronger entities
• Large, major international firms have now identified our industry as a target
• Intelligent Building Solutions have now joined Business Automation in the marketplace
• The enterprise is placing great pressure on the traditional disparate application strategy
• The integration of technology is forcing the integration of business practices, such as Property and Facility Management
• Many software solutions from various sub sectors in the industry are starting to overlap
• Data standards will be an integral part of every vendor, it will not be the exception but rather the rule
• The small startups who survived are evolving into stable mid market solutions
• The sophistication of the solutions has created an elevation of importance for the firm CIO
• The applications are becoming much more complex, requiring an overall increase in the level of skills
• Commercial Real Estate firms are really beginning to understand the importance of these investments
• The next step for the industry will move past digitalizing and focus on real-time automated transactions

We believe history will show that 2004 was the beginning of a new and positive phase for our industry. As more and more paper-intensive, analog, traditional Commercial Real Estate firms begin to understand the strategic importance of automation as it relates to their overall business strategy, the Real Estate Technology sector should continue to see steady growth. As the benefits of automation start becoming even more apparent to mainstream Commercial Real Estate firms, we could see this slow and steady growth evolve into explosive adoption.