ChatGPT and real estate cash flows

Is the explosion of ChatGPT about to disrupt the livelihoods of real estate investment analysts any time soon? And will opportunities at entry level be at risk? Who, how and what will be produced to satisfy the ongoing institutional needs for discounted cash flow modelling and demands of acquisition, asset management and client reporting due diligence? While these are all natural questions in the face of hype and headlines, it serves us well to take a brief step back:

The clue is in the name: the “GPT” part stands for Generative Pre-trained Transformer, which is a program that can realistically write like a human. i.e. this involves a language model, and has significant implications for tasks that involve spreadsheets.

Confusion can also abound around the degree of penetration ChatGPT will achieve in spreadsheet modelling labour. After all, Microsoft is about to release (beyond the lucky testers at Fortune 500 companies) the AI-powered magic for Office 365 across Word, Powerpoint and… yes… Excel spreadsheets. And even with ChatGPT version 3.5 there is no doubt that ChatGPT can be excellent at recommending Excel formulae based on human natural language prompts.

So what is the friction between ChatGPT and spreadsheet modelling? Therein lies what concerns high-calibre Analysts and financial teams that depend upon them:

Large Language Models (LLMs) like GPT-4 are designed to generate text based on prompts. These models work by taking a sequence of input text and predicting the next piece of text in the sequence. They are sophisticated and can generate a wide range of responses, but they operate within certain limitations.

Creating a fully functioning spreadsheet involves much more than just generating text, it involves a structured grid of cells, each of which can contain values, formulas that reference other cells, and more. Here are a few reasons why a LLM like GPT-4 cannot write entire spreadsheets:

  1. Text-based Output: GPT-4 operates by predicting the next piece of text in a sequence. It doesn’t have an understanding of the structure of a spreadsheet or the ability to generate a grid of cells. It can generate text that resembles the contents of a spreadsheet, but it can’t create an actual spreadsheet file.
  2. No Understanding of Spreadsheet Structure: GPT-4 doesn’t understand the structure of a spreadsheet in the way a human does. It doesn’t understand the concept of cells, rows, columns, or formulas. It can’t reference one cell from another or calculate the sum of a range of cells.
  3. No Persistent Memory or State: GPT-4 generates responses based on the input it’s given, and it doesn’t have a memory of past inputs or outputs. This means it can’t maintain the state of a spreadsheet over multiple turns of a conversation. For example, if you asked it to add a value to a cell in a spreadsheet, it wouldn’t be able to remember the value of that cell in a later turn of the conversation.
  4. No Interaction with External Software: GPT-4 can’t interact with external software, which means it can’t use a spreadsheet software like Excel or Google Sheets to create a spreadsheet.
  5. Limited Complexity of Generated Content: While GPT-4 can generate quite complex content, a full spreadsheet might require more complexity than it can handle. For example, if a spreadsheet has a lot of formulas or cross-references, it might be too complex for GPT-4 to accurately generate. And when best bids are concerned, investors are very focused on every dollar, euro, pound or yen they are prepared to allocate to a real estate opportunity.

Despite these limitations, GPT-4 can still be used to generate text that can help you create a spreadsheet. For example, it can help you write formulas, figure out how to structure your data, or even generate pseudocode for a script that could automate the creation of a spreadsheet. However, the actual creation and manipulation of a spreadsheet would need to be done using spreadsheet software or MaaS (‘Modelling As A Service’).

So financial analysts can sleep well. GPT-5 is unlikely to venture much into their territory from what we know today.

Credit: this has been delivered with the benefit of ChatGPT version 4.0.

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