How Technology is Changing the Landscape of Commercial Real Estate: Leasing, Operations and Business Intelligence
Recently, Fifth Wall was honored to host and moderate a panel on the future of real estate technology at Wharton’s Zell Lurie Real Estate Center’s Fall Members Meeting. This event is typically attended by the US’s most high-profile and largest real estate companies and their management teams; an outstanding opportunity to showcase some of the most innovative real estate technology startups and have a dialogue on how technology is transforming the real estate industry.
Although Grey Wolf has invested in a broad spectrum of startups in real estate technology , I wanted to select a single, coherent theme that would be most relevant to this audience. Technology can be a challenging topic to discuss with real estate owners; often invoking divergent reactions of optimism (real estate technology is great for the industry), pessimism (we’ve tried XYZ tech solution and it failed, tech deals are overvalued, aren’t we in a bubble?) and confusion (I don’t understand what real estate technology means or how it will ever impact my assets/business)
Grey Wolf believes the real estate industry (the world’s largest industry) and the technology industry (the world’s fastest growing industry) are in a head-on, high-speed collision. Technology is no longer merely a sector of the US economy, as Marc Andreessen says “software is eating the world.” A technological tidal wave of innovation is sweeping across all industries today, including massive sectors of the economy that we typically think of as ‘old world’ and ‘brick & mortar’ like transportation, agriculture and real estate. As a result, Grey Wolf believes that the size of technology subsectors (fintech, retailtech, adtech, real estate tech) will begin be relatively as large as the underlying industries they are addressing. To put that more bluntly: the largest sectors of the US economy will support largest subsectors of the technology industry. BTW, its already started…..
Real estate is by far the US’s largest industry: the largest contributor to US GDP with ~$2 trillion representing 13% of the total US economy. Real estate is also the US’s largest asset class: representing $40 trillion of asset value, more than both the US debt and public equities markets. Real estate represents the US’s largest lending category with $13.5 trillionin real estate debt outstanding; 11x larger than all student debt & 15x larger than all credit card debt with $1.6 trillion in new real estate debt is issued each year. Accordingly, as the largest sector of the US economy we anticipate that real estate tech will rapidly become one of the largest, if not the largest, subsector of the technology industry. Explosive growth in real estate technology is truly inevitable.
But with size comes complexity, and nobody can be sure what will come out of this collision between real estate and technology, including us. One thing is for certain nevertheless: the real estate industry in 2025 will still be the world’s largest industry but it will look very different than it does today with respect to technology. Yet, conventional definitions of ‘real estate technology’ we believe are too sweeping and even ambiguous in light of how large and complex the real estate industry is. As such, we wanted to select a single, coherent and consistent theme for the panel and selected from the 4 major pillars of real estate technology as we view the sector:
- Asset Management Technology: Technology that is improving or enhancing the $60BN real estate asset management business. Today, real estate asset management is primary a service-based industry that has been slow to adopt technology and is plagued by striking inefficiencies. Asset management technology can mean anything from better lease pricing & marketing tools, property management systems, vendor management systems, OpEx-minimizing software, property-level robotics, ‘Smart buildings’ hardware, green/cost-effective materials and construction tech, and even ancillary revenue drivers for landlords like storage, data, parking concepts. Its a very broad category and one that will span a variety of new, innovative businesses that help landlords do two things: (1) generate more revenue and (2) reduce cost.
- Brokerage Technology: This is probably the category of real estate technology that has seen the highest level of innovation to date. Why? There are 3 million brokers in the US supporting a $200 billion industry between commercial and residential leasing, sales, and financing. And most people have had a bad experience with a broker and therefore assume that this industry can be altogether supplanted with software. There are at least hundred (maybe even thousands) of startups that are going after some portion of the 6% commission brokers make on home sales. Pretty much all of these attempts to ‘disintermediate’ or replace brokers have failed or pivoted into a different business model (ex: Zillow, Compass). This should come as no surprise, the National Association of Realtors is one of the largest, most active and most politically influential trade organizations in the US and even the world. And buying a home or building is far more complex, nuanced and downright expensive than any other purchase that happens online today with any regularity. Homes are usually an individual’s largest purchase and far less standardized than the goods and services we typically purchase online. Buying a standardized model car on eBay Motors is hard enough, buying an idiosyncratic home or office building online is nearly impossible without a high-touch broker to regulate and manage the process. All too often, concepts that try to “disrupt” (read: replace) brokers fail and instead pivot into being either technology-enabled brokerages (Compass, RedFin) or marketing software for brokers (Zillow, Trulia)
- Real Estate Financial Technology: This category encompasses any technology that increases the efficiency of real estate capital markets: the buying, selling, valuing, financing, and accounting of real estate assets. Every year, between residential and commercial real estate, there are $1.5 trillion of asset sold in the US and another $1.6 trillion of financings. The existing financial and service infrastructure that supports these transactions is beleaguered with inefficiencies. If you’ve ever purchased a home, you know exactly what we mean; and buying a building is even worse. There are a number of companies attempting to grease the bearings of real estate capital markets: crowdfunding, online mortgage originators, valuation and accounting software, data driven credit solutions, and everything in between.
- Tech-Enabled Real Estate Concepts: We use this term to refer to any technology that reimagines the very meaning of commercial and/or residential space itself. Real estate is, at its core, all about the economic utilization of space. Yet in a software and mobile-enabled world, the meaning of ‘space’ and “utilization” are becoming more and more amorphous, fungible and complex. Airbnb is reimagining your apartment as a hotel room, WeWork is reimagining the office as a shared workspace with memberships; Clutter is reimagining the meaning of storage with virtual, remote self-storage; Common is reimagining the meaning of apartments with co-living environments; Zirx is reimaging your parking space; Classpass is reimagining your gym membership . Start-ups in this category tend to be truly disruptive to real estate incumbents as they are often developing alternative or competitive solutions that provide for a more efficient utilization of physical space to individuals and companies.
We ended up selecting Asset Management Technology, as its probably the most “consensus” theme in real estate technology. What do we mean by that? Every real estate investors seems to have differing views on whether WeWork is a viable real estate concept, whether brokers will ever truly be disintermediated, and whether there’s any way to improve on the inefficiencies of real estate transactions and financings. But there is one thing every real estate investor agrees on: that technology will dramatically improve how real estate assets are managed. The future of real estate asset management is a technological future, that much is clear.
As such, we selected four the most innovative companies in asset management technology for a panel entitled: “How Technology is Changing the Landscape of Commercial Real Estate: Leasing, Operations and Business Intelligence”:
- Michael Mandel, Co-Founder and CEO, CompStak: a network of real estate brokers & owners to exchange leasing data
- Justin Alanis, Co-Founder and CEO, Rentlytics: a data-driven pricing and management platform for the multifamily industry
- Andrew Flint, Global Head of Business Development, VTS: a SaaS commercial property management solution
- Riggs Kubiak, Founder and CEO, Honest Buildings: a marketplace connecting building owners & property managers with vendors to optimize and track capital investments at the property level (Disclosure: Grey Wolf is an investor in Honest Buildings and sits on its Board).
We had a very engaging discussion that ranged from:
- Why has the real estate industry, as the US’s largest industry by far, been so slow to adopt technology despite being so profitable?
- What has changed recently that has increased the demand for real estate technology from owners and property managers?
- The challenges of demonstrating ROI and selling technology solutions into real estate owners who are typically slow to adopt technology and/or who have had bad experiences with it in the past
- The merits and drawbacks of raising strategic real estate capital rather than VC capital
- Each company’s vision for what the “Office of the Future” looked like
- Will adoption of technology lead to greater concentration of ownership in the real estate industry or ‘democratize’ ownership: allowing smaller, less capitalized players to scale in ways not previously possible
We definitely stuck a nerve with the audience and in addition to a variety of questions, these panelist were swarmed by real estate investors after the panel. In a few cases, real estate investors not only wanted to adopt these technology solutions but wanted to invest in these companies.
All in all, it was an amazing opportunity to present these truly amazing companies innovating in the real estate industry to such an amazing audience of thoughtful, innovative real estate investors. We were thrilled to have the opportunity to present.