The Coming Real Estate Disruption

Pennyworth.io
May 17, 2018 · 3 min read

Barbarians at the Gate.

The real estate industry is at the beginning stages of a major disruption. Technologists look at real estate, the underlying concepts and think “I bet there are ways to increase the cash flow from occupants to the tune of 2x-3x while reducing the costs of operations by 1.5–3x” via integrations of existing and emerging technologies. The single-most impactful variable changing real estate over the next decade will be the auxiliary and knock on effects from level-four autonomous vehicles — which will fundamentally shift how people move, opening new corridors for development and new demands from tenants (more on this in a separate blog post).

In the office sector optimization and integration of technology has been occurring at a rapid clip since the Great Recession — companies like WeWork & Convene are ubiquitous for their shared office space and services model which has greatly increased the efficiency of office space — fitting 2–3x the number of people per 1000 sqft. These companies are creating operating systems for buildings, optimizing the tenant experience, optimizing cash flows — all leading to better experiences for the tenant and increase of cash flows for ownership.

Real estate has always been a conduit for community. Over the past 50 years neighborly engagement has declined from 70% to 25%. This trend is more pronounced in multifamily buildings where neighborly engagement is far less than single family dwellings — less than 10%. Why ? There are many causes — internet and mobile revolutions, social networks, etc. but an often overlooked factor is the role of the property manager — and ultimately the role of the developer and owner.

A reflection of societal and cultural values, the demands from real estate are changing. Consumers are demanding community in real life. Look at WeWork, AirBnB and the plethora of co-living startups focused in large part on connecting people to each other and to communities. WeWork buying Meetup was a integral signal that they see the future as being all about community development and reversing the trends of isolation.

Looking at the development of multifamily units over the past decade, one could miss their underwriting mark by 30% and still make money in markets due to cap rate compression, rising rent rolls and cheap capital. The tailwinds are that strong. Major swaths of the US population desire to be closer to urban centers & their jobs — homeownership is much less important to Millennials and Gen Z’s.

Community development, services as amenities, space as a service and building engagement are the future of real estate . The best part: these disruptions will equally benefit the developers/owners/operators and the people living in the buildings. Pennyworth is the tip of the spear combining technology, service amenities and community engagement.

-Greg Vallario, Founder & CEO


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