The Future of the Built World

We are excited to share some of the key insights coming off of our Salon on the Future of the Built World

As mentioned in our most recent Fifth Wall Newsletter, we are excited to share some of the key insights coming off of our first annual Fifth Wall LP Conference + Salon on the Future of the Built World, held earlier this month at our Venice headquarters. Leaders from our our Anchor LP’s CBRE, Equity Residential, Host, Hines, Lennar, Macerich, Rialto and Prologis, as well as Financial LP’s joined for an engaging two days and covered a lot of ground, including an update on Fund I deployment and key learnings, as well as opportunities to continue the cross-collaboration and synergy that so many of our investors have commented is a key value differentiator for Fifth Wall.

To close the conference, we opened up the room to additional friends of Fifth Wall and convened some of our most dynamic Portfolio Company founders as well as counterparts from Sidewalk Labs, AirMap and the City of Los Angeles for an electric series of panel conversations on the future of the Built World, in which we analyzed everything from the future of smart cities to the ways blockchain is poised to transform the Commercial Real Estate industry. (Thanks to those who joined us from as far as the Middle East and China to take part in the salon — if you would like to be included in future events like these, please reach out to us!)

Our three panels were helmed by moderators Steve Levine (Axios, subscribe to his Future of Work newsletter here), Cory Weinberg (The Information, subscribe here) and Jonathan Shieber (TechCrunch, follow him on Twitter here) who artfully steered each conversation into 45 minutes of thought-provoking, highly-engaging discourse. Special thanks to each of them keeping the energy in the room vibrant from start to finish.

We kicked everything off with the Future of Cities panel, which examined smart cities and the future of housing, energy, mobility, social services and shared public spaces through the lens of those engineering them and whose companies are powering the technology making these innovations possible. Panelists included:

Claire Woo (left), explaining how buildings of the future will become power plants, complete iwth smart energy management systems

Visions on the future of our cities showcased a possible future where smart cities can be sustainable and resource conscious, with a real opportunity for increased accessibility and participation from people of all socioeconomic backgrounds. With the rapid pace of technology development, smart cities are not only finding ways to bring innovative technologies to their locales, but are also exploring governance in inventive ways and rethinking their role in providing certain services like transportation, for example, by enabling private enterprises to provide those services themselves.

Claire Woo spoke about the Future of Cities from the perspective of energy and how that relates to buildings. Claire believes buildings will become power plants, complete with smart energy management systems, flexible loads, onsite generation and energy storage. This will allow owners to sell power to their neighbors as part of a much, much larger transformation of the electric grid — something Blueprint Power is already working toward through its mission to “accelerate the transformation of buildings into intelligent power nodes, allowing them to participate in transactive energy marketplaces.”

If buildings will become power plants, cities will become more like airports, according to Ben Marcus, whose company AirMap builds digital low altitude airspace management infrastructure. Marcus believes that in 50 years we’ll all commute to work in flying cars, presenting an interesting real estate opportunity: the de-urbanization of cities. People will be able to live much further from where they work and get there much more quickly. In the meantime (next five years), people will benefit from drones in their daily lives, for everything from deliveries to helping insurance companies inspect rooftops after storms.

Ben also stressed the importance of cities themselves evolving in terms of governance in order to keep up with the rapid pace of technology development. AirMap will help in that effort by connecting aerospace authorities with the drone ecosystem to unlock safe, efficient, and scalable drone operations in the cities of the future.

While infrastructure of airspace is a relatively new idea, Toby Sun from LimeBike tackled the issue of infrastructure within cities and how smart cities of the future will be powered by smart sensors and devices. In the next five years, we’ll see gradual progress toward more eco-friendly, smarter cities through the adoption of new smart devices, sensors and data, but will not see truly transformational change for another 50 years. Data collected from these devices, among other technologies, will drive decision making when it comes to city planning, help to identify problems and overall make cities more responsive.

Sari Ladin-Sienne says Los Angeles is already using data to make better decisions that proactively respond to challenges — the Los Angeles Bureau of Sanitation reduced dirty streets by over 80% (300 miles of dirty streets originally, now there are less than 100 miles), and the Great Streets Initiative is re-imagining the city’s neighborhood centers. Since entering office in 2013, Mayor Garcetti has invested in data as a core tool for communication, collaboration, and innovation. Garcetti’s data program leverages its data sharing platforms — the first-of-its-kind GeoHub and the Open Data Portal — to tackle multifaceted issues like gentrification or homelessness. Aside from being more proactive and responsive, smart cities will be much more inclusive than today’s modern city, especially in terms of civic engagement. While some already receive information about what is going on in and around their city via personal assistants such Alexa, the connection will be completely seamless in 50 years. Like Claire, Sari sees future cities as an inclusive place that includes network and connectivity for vulnerable communities. In five years, Sari envisions a multi-modal system that is far more effective than what’s in place today. And in 50 years, procurement will be solved, and regulations will provide significantly more flexibility for both private enterprises as well as citizens.

Sari Ladin-Sienne (second from right), discussing the ways in which the City of Los Angeles is using data to make better decisions that proactively respond to challenges.

Johanna from Sidewalk Labs gave a picture of what modern engineering looks like now to better account for the many future possible technologies in cities. As she works on the Toronto initiative she sees changes already as residents change their behavior and more people are giving up cars. Like the others, the timeline of full implementation and realization of plans takes time, but the the city has an eye on the future. When asked about whether buildings in the Toronto Plan include support for flying cars, she noted that since buildings have long life cycles , it’s important to maintain flexibility — that way they can support flying cars when/if they do become the norm. Sometimes, over engineering can add long term value to real estate assets.

A deeper question is if there is a fundamental tension in these future cities between efficiency/technology and the human desire (and need) for interpersonal interaction and connection. Demographically, this generation is interested in being closer together and the panelists seemed to agree that urban technology shouldn’t just mean being more connected to our devices. And cities are already addressing this — the UK appointed a “Minister of Loneliness” to address the growing problem of loneliness as a huge, huge problem for modern cities. How do we balance efficiency with social interaction?

Takeaway: Cities are changing and morphing on the topics of accessibility, connectivity, and sustainability, slowly, but surely. Are they truly “smart” now? No. Are they getting “smarter” by the month? Yes.

Real Estate-as-a-Service

A look at disruptive platforms are reimagining the meaning of real estate as a “service” rather than an “asset”

Moderated by Cory Weinberg from The Information.

Panelists:

There is a massive trend of companies outsourcing their workplaces and Jamie Hodari discussed how Industrious capitalizes on this trend with coworking spaces. Business looks very different for different geographies in this space, which can prove challenging. For instance, operating space in St. Louis compared to San Francisco or New York are two completely different scenarios. “Subscription for real estate” is Jamie’s long term dream, but not a current reality — their product is currently not perfect because it can’t serve every size tenant, and it will be that way for years. As a platform, it’s unfortunate to have to tell a tenant to go somewhere else once they’ve reached a certain stage. Referring to owning physical real estate, Jamie doesn’t believe it would be great for their business. They are experts at delivering the best work experience and owning the underlying real estate asset doesn’t bolster their moat from his perspective. The dream is 10,000 square foot smaller locations in more places, however 20,000–22,000 square feet is a starting point to include the space and amenities needed to successfully serve tenants.

Ryan Simonetti (left), and Ari Mir (right), look on as Joe Fraiman (center) spoke about Lyric’s expansion plans.

Ari Mir spoke about Clutter’s on demand physical storage platform operating in seven markets, with aggressive expansion plans. They provide a full inventory management system online for customers to track their belongings. Owning its own industrial warehouses is something that Clutter is willing to consider long-term, but not a current goal for the time being. With the continued growth of e-commerce, Clutter plans to leverage physical real estate for their own supply chain as well as for others. A retail footprint within the cities they operate in will likely be part of their business, both for the brand equity value as well as serving as a node in the supply chain.

A new category of accommodations, Creative Suites, will combine the spaciousness of an apartment, the amenities of a 4-star hotel, the productivity of your favorite work space, and the creative surroundings of an artistic studio. Lyric is in 10 markets now, and Joe Fraiman noted they plan to double that to 20. For landlords, Lyric mass leases blocks of rooms (entire floors), and handles end-to-end operations of those units. One thing they’ve improved upon by necessity was business development with large organizations. Early in the business, they learned quickly that success meant selling to each stakeholder separately. It took a long time to understand the deal structure and parties needed. The transformational opportunity for Lyric is to lead the movement to a new middle ground of accommodations.

Like others on the various panel, a core part of Convene’s strategy is to address where technology and humans converge, and how we can make that better. Convene runs a workplace hospitality platform blending meeting spaces and workplaces — in each location, square footage is generally one third workspace, one third amenities, and one third event space. Ryan Simonetti, spoke about their focus on large (40,000 square foot and above) class A real estate assets in dense urban markets. While not being in every market is certainly a downside in terms of network and scale, there is immense power in focus. The future of work is flexibility, agility (for workforce as well as the company), and human experience, according to Ryan. Rather than own real estate, Ryan would rather influence design upfront as the anchor lead-in. Convene will open 24 locations next year, with many deployments being as an anchor tenant that a redevelopment is built around. He concluded by asking: How do you deliver an empathetic workplace and what does an operating system for a building from a human experience look like? Those are the core questions Convene is solving.

Takeaway: With the continued rise of workplace, storage, and event space outsourcing, Real Estate as a Service is an evolving and fast-growing category of Built World companies with enormous potential. While the panelists were split on the importance of owning the underlying assets, they agreed upon the importance of the customer experience and creative flexibility. It’s a certainty that several category kings will emerge from the real estate-as-a-service theme, and we’re thrilled to back such strong players in the space.

FinTech & The Built World Economy

A look at how fintech has disrupted almost every sector of the real estate industry, where it falls short and how it’s expected to evolve. This panel also looked at how blockchain technology is poised to transform the commercial real estate environment.

Moderated by Jonathan Shieber from TechCrunch.

Blend is building an amazing SaaS tech-enabled mortgage business, and part of Fifth Wall’s investment was brokering a deal with Blend for Lennar (the largest homebuilder in the U.S.). Regulatory risk isn’t a bad thing for Erin Collard’s business, as it acts as a moat to competition in mortgage (not unlike how the challenges obtaining MLS data act as a moat to those who have spent the money and time to aggregate hundreds of MLS’). There is a major area of opportunity in strengthening the realtor and loan officer relationship, especially in markets where homes sell in a couple days. If that relationship is not rock solid, there’s little chance a buyer will be able to win a bidding war and close on a property.

The insurance industry has historically been focused on improving efficiency, but refocusing on the customer is the way to transform the experience. Assaf Wand from tech-enabled home insurance broker Hippo outlined the opportunity for home insurance to be much more proactive — monitoring roofs with drones, cleaning gutters, changing water filters, monitoring for leaks, etc — in order to provide more value to the homeowner, and de-risk Hippo’s business in the process.

Assaf Wand (center) explaining the ways in which home insurance can be much more proactive.

Harbor is on a mission to bring the liquidity of public markets to private securities. Real estate happens to be the world’s largest class of private securities. Making trades faster, cheaper, and easier (using Harbor’s blockchain technology) will lead to more liquidity, while remaining compliant with rules and regulations specific to each investment. On the topic of regulation, a mistake made by cryptocurrency players such as Bitcoin was viewing regulatory hurdles as an impediment. Instead, Josh Stein thinks they should (and Harbor does) view the SEC (and other regulatory bodies) as a large and important client. He’s bullish on Harbor’s ability to enable unbundling of ownership interests, and rebundle them. While Harbor is certainly focused on real estate for its early adoption, they are also thinking about hedge funds as another long term category.

While it’s true municipalities across the U.S. are experimenting with blockchain for various uses like reimagining land registries (and there are numerous startups trying to help them do so), Max drilled down to the exact issue when he mentioned the need to sell into 3,000 county recording offices being a huge (massive) barrier.

Takeaway: Fintech continues penetrating into real estate as a result of financing being a requirement to every transaction. One opportunity playing out is the strengthening of the realtor and loan officer relationship from lead all the way to closing. Regulatory hurdles do slow innovation in the sector, though act as a moat for those companies who have spent the capital to overcome them. We’re excited to support companies tackling huge challenges across the entire financial spectrum, from buying and selling (Harbor) to titles (States Title) to insurance (Hippo) to mortgage (Blend).

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