A great deal has been written about the impact artificial intelligence (AI) will have on the real estate industry and the preparation and negotiation of legal documentation for real estate transactions. There is a general sense that the real estate industry, like the rest of the business community, is at the forefront of new technology that will reinvent the process of how we identify and negotiate our real estate opportunities and draft the related documentation.

As we contemplate the impact of AI, we tend to think of AI as a form of “intelligence” and as something that will think for us on a more efficient and comprehensive basis. AI is often discussed being faster, cheaper and better. However, when we take a closer look at AI in its present form, we better understand that its strengths are in (i) locating and analyzing data, (ii) creating algorithms based on an assumption of recognized patterns, and (iii) providing guidance or even complete documentation, which is reflective of those assumptions. AI’s capabilities allow it to gather and review extraordinarily large volumes of information and create formulas from that information that are not necessarily “intelligent,” but provide perceived predictive behavior.

Today, when the nature of a request to AI lends itself to pattern recognition, these systems work remarkably well. However, wherever the process is more than pattern recognition and requires judgment or tradeoff that may be unique to a transaction, there can be complications. In response to a request, AI will weave together information it believes to be relevant to complete a task and apply its perceived assumptions, whether accurate or not. The product provided may look correct and it may read well, but on reflection, it may not accurately reflect the breadth of options or choices that would be available as you go through the real estate negotiation process. These outputs are often referred to as “hallucinations,” which are fabricated information that may sound correct but generally will not reflect the intended result.

Does this mean AI has no use or application in the process of preparing legal documentation in the real estate industry? Used correctly and armed with the correct parameters, there is no question that AI will be very helpful in (i) collecting and analyzing market data, which will allow the parties to engage in better and more accurate critical thinking as to the economics of their deal, (ii) creating first draft of lease abstracts, and (iii) assisting the parties in analyzing legal documents more quickly. With some assistance, AI may even provide viable alternative concepts or provisions the parties might consider. While these services may augment the process of negotiating real estate documentation, the parties will still need to engage in the time-honored process of negotiating those provisions in the agreements that are of particular importance to the parties.

Consider how this new technology might enhance the process of commercial leasing. A standard commercial lease will include provisions that raise a myriad of issues and sub-issues to be considered and negotiated. These provisions often include more specific provisions for a particular transaction.

For each of the concepts in a lease, there are provisions that will address the landlord’s interests and the tenant’s interests (and maybe a lender’s interests). Many issues may have a high degree of predictability as to (i) what will be discussed, and (ii) a resulting concept to be included in the lease. AI can be useful in developing an algorithm that identifies each of these elements in the lease score to confirm (i) the provision is in the lease, (ii) its appropriateness from a landlord’s standpoint, (iii) its appropriateness from a tenant’s standpoint, and (iv) to add special consideration on a state by state or market by market basis. It may even make suggestions on appropriate language to address these issues.

By way of example, in the area of a tenant’s right to leasehold ”alterations,” a lease may state:

1. If alterations are allowed by the tenant
2. What level of consent from the landlord, if any, is required
3. If there are exceptions to the requirement for consent
4. What the procedure is to govern the installation, if any
5. Special limitations on the alterations, if any, (vi) who owns the improvements
6. If the alteration is required to be removed by the tenant at the end of the term of the lease.

While AI may not provide a definitive answer to how the lease should read, it may be able to quickly spot and outline the issues that will be of concern to a landlord or tenant and provide context and alternatives for consideration based on a typical pattern of negotiation. Through this process, the parties will be able to expedite a high-level review and discussion of the business arrangement with greater efficiency.

AI also has the capability to provide data for market analysis, estimates of preliminary construction costs and timeframes for construction, as well as develop a listing of appropriate due diligence issues for the parties to the lease.

For those who are concerned as to how AI may impact your future role in this industry, it is my sense that AI will act as an important new tool which will reduce busy work and allow the parties to quickly identify issues that may be of concern. However, for all of its many benefits it will not be able to factor in all of the intangibles; The data points that do not follow a pattern might include (i) the economic need to purchase, sell or lease the space, (ii) tenant mix, (iii) the tenant’s need for the space, (iv) the financial position of each of the parties, (v) restrictions on use, which are particular to the location, (vi) timing issues, (vii) construction costs and limitations, (viii) preexisting or unique property conditions, and (iv) the personalities of the parties, to name a few. For issues such as these, human expertise remains essential to address the nuanced aspects of the transaction.

Just as the advent of the word processor enabled more accurate and comprehensive documents and quick redlining, and email improved the speed and efficiency of communication between parties, AI will allow us to dissect documents to review and discuss relevant issues more efficiently. This will, in turn, enhance our capabilities rather than act as a replacement of our necessary skills in the final analysis.

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