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January 26, 2012

Real Estate and the Knapsack Problem

As an industrial engineer, part of my background is how to take normal everyday problems and solve them efficiently and quickly.  I solve the same problems as others but have a set of tools at my disposal that your normal practitioners who have been doing it for years may have figured out but never formalized.

This is significant in real estate because there are two classes of industrial engineering problems that are worked through everyday but generally using inefficient methods:  knapsack problems and cutting stock problems.

The two problems that are dealt with everyday are:  1) how much space does a tenant need given a set of employees and an existing real estate portfolio and 2) how should that space be laid out to give the most efficient use of space.  Solving these two problems minimizes the total amount of space required for the client and best aligns it with their operational needs (two common topics around here).  Traditionally problem 1 is solved by brokers or real estate professionals that use the A times B equals C method.  Problem 2 is solved by designers and architects who often end up at the right result – but also miss the mark often – because they follow non-classical approaches to the problem or just create several designs and go with the best.

In school, real estate isn’t a well known career path for industrial engineers.  Similarly, once in the industry there is a surprising lack of structured, engineering thinking.  There is a significant gap that can be filled by thinking through these classic problems differently.

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