Market Movers: Key M&A Trends in PropTech
H1 2020
Covid-19 continues to have a wide-spread impact on the current state of the Real Estate Technology (PropTech) industry. In the first half of this year, we’ve seen a near overnight shift in occupier and investor strategy, with digital transformations accelerated to make way for the adoption of technology-enabled operations that limit in person touch-points and optimize cost savings.
Such factors have played a role in the continued resilience of the PropTech market, which saw continued growth through the first half of this year with 49 transactions completed — primarily by strategic buyers (94%). Most active within the segment, were Real Estate Exchanges, Property Management, CRM, and Construction Management Software providers.
Various trends tie to the heightened deal activity mentioned in the above four segments, but four key underlying trends are specifically worth mentioning.
- Adoption of Real Estate eCommerce Capabilities
Pre-existing technologies that have been forced into use via social distancing measures are being embraced by both buyers and sellers as long term solutions as it relates to multi & single family residential real estate.
A New Normal for Real Estate Transactions
The technology for 3D touring, online purchasing, video conferencing and electronic document signing is not entirely new to the PropTech space, but realtors have been slow to adopt. Coronavirus has forced realtors to conduct business remotely and adopt the existing technologies, with some states going as far as legalizing remote notarization software. And while these technologies have been adopted as short-term solutions for maintaining social distancing protocols, the efficiencies garnered have not gone unnoticed and are being embraced by customers and real estate professionals alike.
The Rise of the iBuyer
An, “iBuyer” or instant buyer is a real estate company that uses electronic systems to make instant offers and purchase homes in cash. Such firms have have garnered higher than average fees (8% — 9%) and justify such premiums via the speed and convenience garnered as compared to other more traditional methods. And while the iBuyer still makes up just a small portion of all purchases, they have doubled their market share from 2018 to 2019 increasing from an estimated 1.8% to 3.2%.
The shift to e-commerce capabilities is evident when also looking at major market leaders such as Zillow & Redfin and their corresponding stock performance in H1. In the height of the pandemic in March, Zillow saw a 191% increase in the creation of 3D home tours while Redfin saw a 494% increase in requests for agent-led video tours. An even if these advances only lead to minor sustained increases in sight unseen purchases, it is believed that this technology will see a significant increase in use as a precursor to in person tours post-pandemic.
2. Continued Growth of Cloud Based Software & Mobile Devices
A key part of digital transformation is creating a flexible operating structure that allows an enterprise or company the ability to adopt and implement new innovations at the rate and pace such developments are made. And a cornerstone to that needed ability is the need for cloud-based software. The low-cost and high levels of security within such software has been successful in eliminating complicated webs of information transfer. Further, once implemented, these technologies are increasing efficiency, and reducing time and labor costs for all real estate teams whether it be at the time of construction or the sale of an asset.
Mobile Devices and Cloud Based Software
When paired with the availability of cloud accessible mobile devices, cloud-based software becomes an even more powerful and essential aspect of any team. Such mobile devices can easily be utilized in the field for remote access to information, communication between teams, and process standardization through applications leveraged.
One of the fastest growing opportunities is with field service technicians and facility management. Within the facility management space, there are two key trends on the rise that are driving widespread concern, large amounts of tribal knowledge amongst industry veterans, and a growing labor shortage for skilled labor.
Such a current state creates a large whitespace opportunity for cloud-based mobile solutions that track work schedules, asset information/health, and other various metrics that when aggregated together, create forward looking plans and repeatable maintenance and management processes.
3. Accelerated and Mandated use of Building Information Modeling (BIM)
Building Information Modeling & How it’s Used
Building Information Modeling or BIM is a process utilized by construction and property management teams to reduce delays and miscommunication of plans by leveraging tools and technologies to enable clear and intelligent design practices. “Life Cycle” BIM expands upon the traditional notions of BIM which has historically been used exclusively in construction, to include applications across the entire life of the building, making BIM processes even more valuable for facility managers and real estate investors.
Global BIM Usage Requirements
BIM has been officially mandated for public projects in many countries and is seen as the industry standard in those to whom do not have an existing standard.
Existing mandates can be found in:
- Australia
- Germany
- France
- Italy
- Sweden
- Finland
- Denmark
- United Kingdom
- Singapore
- South Korea
- Brazil
- Argentina
- Chile
- Peru
- Mexico
- Russia
And while the above have formal mandates, in places such as the United States, Canada, India, China, Spain, Portugal, and New Zealand BIM is considered to be the industry standard. In Africa there is the on-going “BIM Africa Initiative” which is currently raising funds to train individuals in BIM and facilitate the implementation of BIM related policies in 3 African countries by 2025.
4. Commercial Real Estate Transaction Innovation
Advancements in asset tokenization & crowdfunding have continued to make CRE investment more widely available to the general public.
Exclusivity of Real Estate Investment
Investing for individuals has increased in popularity and convenience, with surges in account openings at major online brokerages and the release of investment applications for mobile devices. And while surges in popularity of investing continues to rise, real estate as an asset category has been largely left out as a result of high capital requirements and the complex, manual processes required to execute a transaction.
New Innovations are Shifting that Narrative
Peer to Peer lending, Crowdfunded Real Estate, and Asset Tokenization are three key trends gaining steam that all share a unified goal in creating more access to individuals for real estate investment.
Peer to Peer lending for starters, connects individual creditors and debtors directly, without giving a financial institution the ability to deny a loan. This new technology is expected to have explosive growth, growing from $34B in 2018 to an estimated $589B by 2025, driven by the ability to enable every day individuals to make leveraged investments.
In the realm of crowdfunding for real estate, platforms such as Fundrise, PeerStreet, and Diversity Fund have created flexible structures that enable wide-scale access to individuals with account minimums of $500–$1000.
Underpinning each of these exchanges, is the cornerstone to allowing the seamless online execution of a real estate transaction, Asset Tokenization. By its’ definition, the tokenization of assets enables the creation of liquidity for traditionally illiquid assets, such as real estate. The tokenization process itself uses blockchain technology, which was originally invented for the purposes of Bitcoin, to divide the ownership contract of an asset into multiple smaller and secure contracts that can be bought and sold seamlessly.
