I
n the late 1990s, a new breed of traders emerged on stock market trading floors. These individuals, often referred to as "quants," held PhDs in mathematics and statistics rather than finance. Initially met with skepticism by the financial establishment, quants eventually proved their worth by outperforming their peers.

    The term "quant" is short for quantitative analytics, a method of using statistical analysis on large datasets to identify trends and correlations. This approach has become a staple in equity and options trading but remains underutilized in real estate. One reason for this disparity lies in the lack of mathematical expertise and data infrastructure within many real estate firms.

    Columbia University's Engineering department is working to bridge this gap by collaborating with real estate companies. Director Josh Panknin explains that they help firms develop data solutions tailored to their specific needs, often starting with government data due to its consistency across geographies.

    However, even with the right approach and focus on data engineering, making accurate predictions can be challenging. According to Panknin, his team has found that they can accurately forecast market trends up to six quarters in advance but struggle beyond that point.

    Their research has uncovered valuable insights into real estate markets, including how geographic constraints impact performance during different phases of the cycle. Cities with limited expansion options tend to experience more volatility and larger price drops in down markets but perform better during bull markets.

    A major hurdle facing Columbia and other academic institutions is the public's lack of understanding about advanced computing capabilities like AI. Many people expect AI to magically solve problems without realizing that only a small portion of developing AI involves building models – the rest is structuring the problem and preparing data for analysis.

    While it may take time before real estate investors adopt the term "quant," the underlying principles of quantitative analysis are already being incorporated into some of the country's largest firms. As with advancements in science and mathematics, it's likely that academic institutions will spearhead the adoption of quantitative analysis in real estate, driving partnerships between companies and universities to tap into cutting-edge computer science research.