J
ohn Carrafiell, co-CEO of BGO, a global real estate investment manager with $89 billion in assets under management, credits artificial intelligence for transforming his firm's investment research models. He was frustrated by the sector's reliance on outdated methodologies and sought to outperform by analyzing past deals using computer models. The results showed that local market fundamentals were key to success, not property pricing or national economic trends.

    BGO built a model that backtested its best and worst performance, incorporating local data points such as demographics and supply trends unique to each location. AI enhanced the model with increased data volume and velocity. Carrafiell claims the model's accuracy is proven through backtesting and has informed successful investments in Las Vegas and other locations.

    The model identified opportunities in areas like the Inland Empire of California, where companies could save by locating in Las Vegas due to lower rents, taxes, and labor costs. BGO ran similar analytics for investments in Florida and the Rust Belt, resulting in big returns on its investments. Carrafiell believes his firm's performance has increased significantly as a result of this model.

    While AI improves accuracy, it can't predict idiosyncratic events like Boeing moving out of Seattle. BGO's lending team focuses on downside modeling to assess risk. Future iterations of the research model will include asset allocation to different commercial real estate sectors, suggesting an optimal portfolio mix. Carrafiell sees AI as an enhancer and accelerator that allows his firm to do more with data science, which he believes is a key driver of success.