The Critical Part of Zoning the Data to Create the Right Outcome for Yourself and Investors

Zoneomics is a real estate intelligence platform utilizing detailed land-use zoning data for investment analysis and business process optimization.

Zoneomics is dedicated to capturing planning and land-use zoning data from fragmented sources and making these important decision-making datasets available in one place and in multiple formats, including a map-enabled Web Platform, quick Zoning Reports, Zoning Data API, and Bulk Data.

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The Critical Part Of Zoning The Data To Create The Right Outcome For Yourself And Investors With Matthew Player

Zoning is a critical part of transacting in real estate. Ultimately, it is the ability to know what you're going to do with that land. Having that information is critical so you can fairly value the land so you can borrow money and create the right outcome for yourself and your investors if you're a real estate developer. In some cases, you have to also call up the county, you’ll be put on hold and then they'll go through some books and tell you the information.

In other cases, you've got APIs on the government website that you can easily download and do things with. The way zoning information is out there right now is inconsistent, which makes it difficult for the public and not just the public. Let's be frank, a lot of people that start to get on here are investors. Real estate investors particularly are going to be interested in zoning information because it gives you the playbook of what you can do.

That information is so difficult to access. Even then, when you're buying nationally, like at Blue Field Capital, where I'm a partner, we buy real estate throughout the country, it is a nightmare. It’s a nightmare trying to figure out disparate counties and locations, what you can do and how you access that data.

Even for seasoned professionals who do this every day, the $14,000 appraisal firms and the appraisers out there, we estimate that they have to spend, and we've actually calculated, on average, six hours a week doing zoning research tasks, going through clunky city websites to look up a PDF of a zoning map. They zoom in, and that's if they have it online, and then go through 1,000 pages of zoning code documents instead of actually doing what they should be doing, which is a real estate appraisal.

It’s the same with a real estate broker. Instead of making a real estate transaction take place, they are going and doing this research task. One, they're probably not skilled to be interpreting the definition of the zoning code and the like. It's one thing if they're dealing with the same city zoning code over and over.

If you're a broker in New York City and you're only working in New York City, it's one thing once they familiarize themselves with it. Suppose they're working in a city like Los Angeles, where the actual LA City property is quite a small jurisdiction when you think about the commercial area of investment for LA as a whole. That's made up of hundreds of municipalities with hundreds of different zoning systems and ports of access to actually access that information.

Investors spend an average of six hours a week doing zoning research tasks instead of doing what they should be doing.

This is one of those areas where AI is definitely going to improve the role or job of these people who are interfacing with the zoning information and data. You could say it should be a public right, but it shouldn't be a public headache to get the information.

That's a great way of saying it. It's publicly available information. That's what a lot of people say to us, but it's a headache in the format it currently lives in and the fact that it's in a fragmented format.

You’re in the show because I wanted the readers to appreciate that prop-tech is disrupting multiple parts of real estate. This is one part where prop-tech companies like Zoneomics are critical. If you know what you can do, knowledge is absolute power and money here. If you know what you can do with something and someone else doesn't, you take advantage of that and make a lot of money. This is how real estate works, whether we like it or not.

It's one thing if the information is there, and you don't look at it. To me, that is called incompetence. It's another thing where if you are getting this information, you've got a secret advantage that other people don't. Sometimes in real estate, you're dealing with distressed situations. It's heartbreaking when you think a lot of these properties are sold when there's a death, a divorce, or some type of bad event like bankruptcy and someone needs that money. It's a ruthless industry. Buyers will definitely bid low and it's acceptable. This is what capitalism is about.

It’s a bit low and they'll know this. It would be great if the seller knew this information. This is the challenge that exists with brokers. Brokers, on the one hand, can protect the buyer or the seller, depending on who they're representing. Often, it’s the seller, by the way, in transactions for real estate. In fact, in most cases in business, even in M&A, it's not necessarily the buyer. It's the seller that's got the agent at an investment level.

Mergers and acquisitions for companies or, in this case, real estate transactions, those agencies have paid a big commission of 2%, 3%, and 6% shared however you want to cut it. It’s for a reason and it’s because they know things. The unsophisticated real estate owner who is about to sell this real estate that's been in the family for generations, decades, or whatever has an agent who knows what the market is like and knows how to negotiate in their interest.

I understand why you need agents, but at the same time, prop-tech is disrupting that too because people are frustrated giving this commission away. Zoning information is one that's key. A good agent or whoever you're dealing with, a lender, an appraiser, or an agent, if they have that zoning data, one person's garbage is another person's treasure. This is an example.

You're absolutely spot on there. As we start off the conversation, the example of where even developers will auction up land is because they know their zoning restrictions a little bit better. They'll sell or they'll get a broker to work for them to do an assemblage and eventually know that that site can be utilized for much. There are some cases where you see that one person finally gets clued in and there are 1 or 2 lots where there's that little old lady that's holding out because she knows that the development company that's trying to put that shopping mall together needs their site.

Good luck to them for doing that because they've been informed, but finally, through word of mouth or just being able to see what's been going on, they actually can track that. As you were saying, where we see importance is Zoneomics is going to help solve the issues and is going to be crucial to all the companies in the prop-tech space. Good zoning is needed to power the innovation investment from the most straightforward from Zillow, Compass, Opendoor, and the iBuyers.

Zillow already recognized this when they did their research back in 2018. Home values grew most in new markets with the strictest land-use regulations. It's going to be important for them both to illustrate if they're making these acquisitions from the iBuyer models to be able to know when a rezone is taking place so they can utilize that and create greater windfalls or the heavy cash outlay there. The impacts of eCommerce on commercial real estate is being sped up even faster now with the impacts of COVID-19.

For example, the old Sears building is now being purchased by Amazon. Amazon needs to know what activities they want to do on that old Sears site. It’s all going to be permitted under the zoning regulation and then it extends even further from just that pretty straightforward real estate play into these growing markets.

For example, the sharing and the gig economy with companies like DoorDash and Airbnb, the growing cannabis sector, the sports betting sector, and even the way communication companies are rolling out 5G networks or infrastructure. All these activities that take place on real estate can be slowed down or halted completely by zoning restrictions.

Zoning restrictions can really stop scalability and hurt tech solutions.

Readers, keep your eyes on this trend. One big asset class that's emerging is ghost kitchens. The ability to have 5, 10, or 20 kitchens in a small area and turning that into a major distribution center is creating a lot of arbitrage here too. You can buy real estate and convert part of that to a ghost kitchen in a neighborhood and serve that neighborhood, but zoning is critical for that.

If you messed up there, your business plans are out the window. There are too many examples of people who had an ambitious idea but failed to do the research. They got excited, made a bid because of FOMO, put down the earnest money, and then realized, “The zoning information here is going to be tricky.” An agent, the seller, or whoever is on the other side will say anything to get the deal done.

There are disclosures and duties of certain things, but we learned early on in the process that it's sometimes just a matter of not stating or keeping things, marking this as potential, and then leaving it up to the buyer or whoever to make their own investigations. It’s not necessarily being irresponsible or callous in the way they do it but it’s trying to promote the property and looking at the brighter side of it.

In my background from over planning, we've always liked to come and present all the problems with why you can't get a certain gross floor area or do a certain use on the property. It comes back to that. I always think about how there was a point where zoning restrictions are now starting to affect Airbnb and short-term rentals. It’s even to the point where there was a good chance that half of South Florida was going to be out of their way for Airbnb, which is a crucial market that they don't want to lose, but zoning restrictions can be put in place to stop the scalability and hurt a tech solution.

The advice I'd given to myself prior to entering the real estate industry was, “Be careful.” I know there's a gold rush but time it well. Inflation is real. Everything’s going up in price right now. If you're entering real estate, be careful. I know it seems like there's a lot of easy money to make and you hear about everyone else making money buying real estate and investing in real estate but don't be fooled.

Do your research. Do your due diligence. If it's your own money, be careful. If it's someone else's money, even more so because you’re a fiduciary. As a takeaway from this, look into the zoning information. Maybe purchase a zoning report from a platform like Zoneomics. That’s a shameless plug, but you've got to do your research.

There's a role to be played. We're doing this as well. There’s a role played by city governments and even state governments as well. The only reason the city does rezonings is they're trying to encourage investment in the community, whether that be some more residential and sometimes that has been pushed by the state to meet housing targets, but also, they want commercial investment in the area. If they go on and park that in a PDF document, the information dies there and they're wondering why someone hasn't come in and invested it, that's one issue.

The second part of it is to make their economies vibrant. Be a little more forward-thinking with the way they have their zoning restrictions. Be a little bit more open to where they want short-term rental and be in tune with that as tech and investors are communicating better with the cities and the city institutions as a whole like the League of Associations and Municipalities. I'll give you an example. I can see from a point where you're starting to see fractionalized investing and different things like that.

Post-COVID, we’ll see where people are starting to be able to work remotely. There could be a big tech play where people may invest in a portfolio of properties where they get to actually own the properties, get the investment off, and maybe occupy. They may stay a week in one of the properties or three months in another, depending on their needs and where they are. That's where the economy and people are going.

If you take it down to the zoning level, I'll give you an example. In Palo Alto, California dwelling is defined as a group of rooms that are occupied or intended to be occupied on a non-transient basis. Whereas in Boca Raton, Florida, their zoning code defines a dwelling as a residence or a living quarters of a person either permanently, temporarily, continuously, or transiently. If you're thinking about that at scale, which is what a big tech company needs to be able to do, there are certain cities where they will be able to maybe do their model and certain cities where they won't.

If the city can't allow that or permit that, then it creates a huge roadblock there, even down to the fact that we've got cities that have totally different definitions for what a dwelling is and that's something that people don't think about. There's a different definition of what a drive-thru restaurant is. There’s a different definition for a dwelling from city to city.

This is a problem that is somewhat unique to the US because we have so many different states and counties and each one has its own laws and rules.

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About Zain Jaffer:

Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780m.

His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as “Forbes 30 Under 30,” “Inc. Magazine’s 35 Under 35,” and the “SF Business Times Tech & Innovation Award.” He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.