A commercial real estate finance giant is giving artificial intelligence a seat at the table.
BGO’s global headquarters is located in a Miami office building at 555 Washington Ave.
Miami-based BGO has begun integrating AI into its investment research models to identify undervalued assets nationwide. Led by co-CEOs John Carrafiell and Sonny Kalsi, the firm recently used the system in a partnership deal with Northpoint Development in Las Vegas, CNBC reported.
The firm fed 20 years of the company’s investment history into a computer model, where the AI system combed through the best and worst outcomes. The system found performance is almost entirely reliant on local market fundamentals instead of national economic trends or property pricing, Carrafiell told CNBC.
The tool backtests the company’s best and worst performances and analyzes local market data and trends unique to the location. Carrafiell said the company has taken thousands of data inputs from the government and telecom providers.
The industrial deal in Vegas was made against other data models, which suggested it wasn’t an outperforming investment, but BGO’s model was “screaming,” Carrafiell said, that the Inland Empire of California was too expensive a market.
The system zoned in on the Las Vegas warehouse site as a cheaper alternative for companies looking to save in rent, taxes and labor. The company underwrote the project for $5.88 per SF, but actual rents rose to $9 per SF, he said.
BGO, which has $89B in assets under management, has run similar analytics for investments in other areas of the country, like Florida, where Carrafiell said the company is getting big returns on investments.
“We think our performance has materially increased as a result of this model,” Carrafiell told CNBC.
BGO has been using AI for the last three years and is now digging deeper to refine it to specific ZIP codes, Managing Partner Matthew Cervino said in a video on the company’s website.
“Sometimes our best investments are the ones we don’t make, and our AI and data science program is allowing us to peer more deeply into the data to render a view into the market that would not be visible to the naked eye,” Cervino says in the video.
While a newer concept, BGO is not the first to integrate, or consider integrating, tech into decision-making.
The real estate division of the world’s largest fund manager, BlackRock, discussed adding an AI member to its investment committee, Global co-Head of Real Estate Paul Tebbit said at a London Bisnow event in January.
BlackRock plans to have the AI tool sit as a consultative member of its real estate investment committee, providing analysis of deal risks and patterns in past investments.
“The type of questions and the dispassionate nature of AI could be a useful kind of almost sounding board for other investment committee members, seeing what it would come up with independently,” Tebbit said at the event.
While AI has brought a new way of approaching deals by thinking outside the box, it can’t predict the future, and can never be entirely accurate, Carrafiell said when talking about the risks.