Real Estate Firms in the Digital Advertising Era: Are You Thinking about the Risks?

Digital advertising is exploding. In just the first six months of 2017 alone, internet advertising revenues exceeded $40 billion. Promoted ads are dominating social media platforms like Facebook and Twitter, and it is impossible to surf the internet or use mobile apps without having to watch or click through a myriad of dynamic ads to get to the underlying content. Why is this? Because digital advertising works.

Real estate owners, developers and managers are getting in the digital advertising game, as well. For example, a 2015 market research report found that real estate developers spent approximately $1.5 billion on online ads in 2014, but that figure was projected to grow to almost $2.7 billion by 2019 (a more than 80% increase). The world of commercial and residential real estate is a competitive environment. Tenants are looking for key differentiators—good brand recognition, a sophisticated online presence, or an interesting mobile app can make all the difference.

The digital ad space is also becoming increasingly complex. There are numerous types of ads available to a potential real estate marketer: native ads, banner ads, pop up ads, flash videos, social media promoted ads, search engine ads, targeted ads, tracking ads, among others. There are other considerations as well. Is the real estate firm seeking to collect information on its targets and engage in tracking? Does the real estate firm plan to use artificial intelligence (AI) and machine learning to determine the scope and location of its ad buys in order to maximize its return on investment?

Because of the complex and high-stakes nature of this arena, many real estate owners, developers, and managers are hiring third-party firms to design, develop and implement their digital marketing strategies. When engaging a digital marketing firm, there are a few key contractual issues to consider:

1. Will the digital marketing firm be collecting personal information from individuals? If the answer is yes, then the contract should address data breach risks, including mitigating controls and consequences. Specifically, the contract should require the supplier to design, implement and maintain a comprehensive safeguard of security controls, and it should not unduly limit the supplier’s liability for failing to meet that obligation. Furthermore, the contract should address the supplier’s operational obligations if a security breach actually occurs. Finally, if the supplier will be collecting personal information from EU residents, do not forget GDPR.
2. Are there sufficient incentives to make sure the advertising campaign is being built the way you want and on the timeline that you want? It is important for the contract to be clear about what the real estate firm is actually “buying.” If a design-and-build project is to be done in phases, then the contract should identify the subcomponents of the work by phase and the committed timeline for each phase. It is also recommended to construct appropriate contractual incentives to make sure the work is done on time and according to specifications—e.g., holdback of milestone fees, receipt of milestone credits, and/or performance warranties.
3. Is the digital marketing firm willing to stand behind the risk of a third-party claim for intellectual property infringement and indemnify you for it? The risk of third-party IP infringement claims is real, especially when a digital advertising firm is using technology tools and processes to perform its work. Dealing with a lawsuit can be extremely costly, and a properly negotiated indemnity provision can be used as an important shield if and/or when third-party claims arise in connection with a supplier’s performance of the digital marketing services.
4. Is the digital marketing firm restricted from taking your advertising campaign to your competitors? A lot of time and money can go into a digital marketing campaign. Digital advertisers may be incentivized to “reuse” components of one client’s campaign for another client, especially if those components are not ultimately used in the final product. A real estate firm that paid for that work product, however, typically does not want its competitors to benefit from that work. Therefore, it would be wise to pay close attention to the intellectual property ownership terms in the contract, and the real estate firm may also want to consider how to construct an enforceable non-compete clause.

Digital advertising is an effective and efficient way to brand a property, but it is also increasingly complex and nuanced, which is why many real estate firms subcontract this work to creative agencies that specialize in digital ad strategy and development. Engaging a third party to provide this service, however, can introduce risk in a number of areas, including reputational risk, business risk, risk to data, and legal risk. Therefore, real estate firms should consider how to mitigate those risks in their contracts with digital advertising partners.