A Moderne View of Venture Capital and Real Estate Startups

We were recently asked a series of questions by Joanna Glasner of Crunchbase and it provoked some thoughts about millennials, diversity, and the future of housing. 

Introduction

Investing in "Real Estate Tech" certainly picked up in the last year, CB Insights reports that more than $2.5B going into RE tech investments in 2016 alone with predictions to increase. 

That said, we actually think of the space as even broader than that.  We particularly focus on companies that can span multiple markets of which one is real estate so, "real estate tech" in our mind encompasses a lot more then a new property management platform.  For example, TaskEasy, UrbanBound, HelloTech, and Contactually are all examples of companies that you would never call “RE Tech” yet have significant influence, and command significant $$s from the real estate space.

When you start to broaden the market to look at the industry as 1.5M independent contractors, 600,000 SMBs and thousands of enterprise clients, you start to realize that ‘tech’ generally can fit into a ‘RE Tech’ strategy and the opportunity is vast for technologies outside the industry to enable change within it.

Are you seeing an increasing level of investor and/or entrepreneur enthusiasm around real estate recently? If so, what are the drivers?
Yes, there have always been investors dabbling in the space but the interest has seemed to increase in the past couple years.  Main driver: a $3T+ market!  I'm surprised it took people this long to catch on. 

Real estate and its adjacent industries are broadly behind in technology adoption so many investors look at the space as low hanging fruit.  As someone who has been investing in the space for 10+ years, I can say that most investors do not understand many of the nuances in the space such as: what drives adoption, true market sizing, political under-hangings and other factors that are not innate to those that are not engrained in the industry.  This is why we exist!  We have an entire program (the Moderne Passport) dedicated to helping our companies figure out quickly what others bang their heads against the wall for years trying to figure out.

How do you see the maturing millennial generation changing the real estate business, particularly as consumers, as they increasingly enter the rental and homebuyer markets?
It has been an interesting time where most markets have seen some of the highest affordability rates yet lowest numbers of new homeownership rates in history. Most of this is due to the last recession: lending got so tight it was impossible to get loans unless you were the perfect middle aged consumer that checked the appropriate 500 or so boxes; Millennials were taking longer to find ‘real’ jobs out of college and more recently, pent-up demand for rental units have birthed amazing rental communities that have driven demand away from homeownership in favor of lifestyle and freedom as more favorable value choices for this particular population. These factors coupled with urban renewal, community and an acceptance of the ‘shared economy’ at large (people not used to owning anything) have influenced the trend of low homeownership for millennials.

All that said, there will be an interesting buy-vs-rent tension to watch in the next few years:

Tension to Buy

  • Millennials now have jobs, incomes and characteristics such that they too can check the 500+ boxes necessary to get a loan
  • Millennials are now starting to have kids.  Until inner city schools get fixed, suburbs will be an attractive option for those that cannot afford private schools
  • Undersupply in certain markets will drive prices higher and into more demand for h ome ownership

Tension to Rent

  • Multifamily owners and operators are increasingly creating digital, service-based amenities (Hello Alfred, Baroo, HelloTech to name a few) to give their renters back a commodity we have never needed more: time. Time to accommodate other challenges millennials face as they ‘grow up’
  • Lifestyle-minded choices and freedom (another key value) make renting more attractive
  • Lifestyle, sustainability, and community are key values of this generation and may drive market fo rces to fix some of inner-city challenges for family living

Other Trends to Watch

This decade will see more diversity (race, gender and heritage) in homeownership than ever before. Boomers will stick it out longer and move urban. As Boomers age, technology in home healthcare will keep them in their homes longer and senior “lifestyle” communities, unlike those grandma ever knew, will attract others away.

What areas of the real estate industry do you see as particularly ripe for startup disruption?

Three big areas of note:

  • Applications of blockchain technologies that drive down friction and transactional costs will create big wins.  
  • There are massive information barriers across all aspects of residential and, particularly in commercial real estate – there is a big opportunity to fix this!
  • Smart homes and smart buildings will become expected norms and they will all be controlled from a mobile device.

Moderne Ventures Says Hello Alfred

Moderne Ventures recently invested in the Series A round of Hello Alfred – a logistics focused company that combines smart tech and excellent service so property managers may offer multiple on-demand amenities to tenants in their Class A properties.

Hello Alfred for Multifamily Building Tenants

Just like Bruce Wayne’s trusted butler, an ‘Alfred’ is a dedicated home-life manager who proactively takes care of time consuming tasks such as grocery shopping, laundry/dry cleaning duties, packaging, and shipping. Tenants in an ‘Alfred Building’ typically receive this basic weekly services package, however, they may also coordinate with their Alfred for additional services such as deep in-home cleaning, gift shopping, washing your Batmobile, or whatever inconvenient tasks that need to be done (at market rate), all directly through the Hello Alfred app. They appreciate the efficiencies and experience that their Alfred delivers; helping to manage “life’s administrata” allows them to spend more time on the things they love. To date, Hello Alfred has made more than 700,000 home visits, saving tenants more than 380,000 hours of time.

Hello Alfred for Multifamily Building Property Managers

Hello Alfred’s tech enabled services have a clear impact on buildings and their property managers by:

  • Increasing revenue
  • Reducing lease-up time
  • Lowering resident churn
  • Reducing operational overhead

Hello Alfred and Moderne Ventures

Something that drew the MV team to Alfred is their ability to establish personal trust with tenants in an on-demand economy where the same provider is rarely used to deliver the same service. The result is that tenants trust their Alfred (a lot). Putting a face, name, and personality in a home, a place where a very limited number of people have access too is critical to the company’s success and the happiness of tenants, who see Alfred as a differentiator and factor in whether to renew a lease or live in an Alfred building. 

We also see Alfred taking advantage of several macro trends that align with the company’s longer-term success by positioning for win-wins on several fronts:

  • Multifamily construction deliveries will continue at a record pace into early 2018. Most expect supply to outstrip demand, which will place further emphasis on a building’s ability to differentiate itself. In order to compete for the growing number of consumers that value the superior amenities and the flexibility that renting brings.
  • Increasing (or maintaining) rental rates with an amenity that doesn’t take up space has a positive impact on NOI.
  • The ‘Amenity War’ is shifting tactically from traditional brick-and-mortar offerings, like the pool or a gym, to technology-based enablement.
  • Digital natives (tenants) expect to engage with their buildings and living spaces in a customized and seamless manner

We’re excited to be a part of the Alfred story, helping to change the way people live with a service that gives them back something we all need more of: time.  

Is Blockchain in Real Estate…Real?

 
 

Three major problems that affect the real estate industry are:

1.     Siloed property and transaction data

2.     High transaction costs

3.     A lack of liquidity

As mentioned in our previous posts, companies that have targeted these problems have had - at best - marginal impacts. Rigid incentive structures of industry professionals have simply not allowed for any meaningful change.

The use of blockchains may finally be capable of breaking this trend.

The most interesting blockchain application in real estate I’ve seen so far is Rex, a company that is taking a bold, phased approach to changing how real estate is transacted by creating a secure data layer accessible to everyone (addressing problem #1) that minimizes transaction and listing costs (addressing problem #2) that can unlock liquidity for owners (addressing problem #3). Rex is in direct competition with the traditional MLS.

Siloed Property and Transaction Data

You can read Rex’s whitepaper here, but the short of it is that Rex is addressing the data silo problem by incentivizing users, including real estate professionals, to participate in the Rex network and share their listings for anyone to see. The more listings and data that is shared, the more users are compensated in REX tokens (more on this in later posts, but the whitepaper outlines the utility of these tokens in greater detail). This kills two birds with one stone: the data is freely available, and fees an agent who would typically pay to upload information to the MLS evaporate. Consumers (sellers and buyers) can access the Rex MLS without the need to subsidize a buyer’s agent fees to drive eyeballs to their properties.

Liquidity!

The most exciting element that Rex wants to introduce relates to “tokenized ownership” of real estate. The company is going to release longer-form details of how this will work, but at the most basic level, “tokenizing” ownership allows for the partial sale of real estate safely and efficiently, without a financial intermediary to centralize and complicate the transaction.

In the words of the company:

What if you could trade 1,000 tokens in the Chrysler building like you trade 1,000 shares of Apple?

The analogy is that you’d be able to buy a building’s tokens as you would a share of a company’s stock, which creates liquidity for a real estate asset’s owner just as buying shares does for a public company’s ownership. Replace “Chrysler Building” with “123 Main St.” and you have a model that can unlock liquidity with a completely technology-driven platform, and open up an asset class typically reserved for investors and institutions with significant capital. Looking further into the future, this could lead to an evolution of the traditional illiquid mortgage. No middlemen, no fees, and unlimited visibility. In a world where 83% of retirees see the majority of their net worth locked up in illiquid real estate investments, this could be a transformative feature.

Summary:

The ideas of freeing data and enabling partial sales of real estate are not new, but the elegance of a blockchain solution to achieve both certainly is.  Rex outlines the risks of their project, which are significant, but this is an early sign that blockchain can – and will – drive efficiencies in real estate that many consider impossible.

Moderne Ventures at the National Apartment Association

 
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Moderne Ventures attended the National Apartment Association in Atlanta, GA the week of June 19th with 5 of our new Moderne Passport Class companies. An afternoon full of mentor meetings with executives from the likes of Greystar, Cortland Partners, Kayne Anderson Capital Advisors, Real Property Management, and Federal Capital Partners, fostered new relationships, and filled all parties with knowledge and insight. 

On Friday afternoon, the CEO's/Founders of abode, Baroo, CubiCasa, Hello Alfred and HelloTech all presented to an engaged crowd on how they're delivering innovation to the multifamily space. Whether through amenity driven services or improving data quality, the companies and the crowd were exposed to new ideas that stand to help each other differentiate themselves across their respective marketplaces.