Real estate technology—or proptech, as it’s often called—is one of the fastest-growing investment sectors in the world.
Between 2016 and 2017, venture capital investments tripled in the space, and if current data is accurate, another banner year is ahead of us. In fact, according to a recent survey by MetaProp—a real estate-focused VC in New York—a whopping 96% of proptech investors plan to invest the same amount of cash in 2018, if not more, than they did last year.
As Clelia Peters, cofounder of MetaProp, put it: “Overall, we are actually in this period of really significant disruption in the real estate space, broadly and globally. Real estate is the largest driver of GDP globally, and it’s really is one of the few major sectors of this sort that had, up until this point, broadly been undisrupted by technology.”
Hopping On the Bandwagon
But it’s not just VCs like MetaProp that are getting in on the real estate tech game. Businesses from virtually every sector and industry are finding ways to capitalize on this growing space and serve the millions of businesses and customers within it.
As Constance Freedman, founder of VC fund Moderne Ventures, explained, “I think that a lot of people have finally sort of figured out that this is a gigantic market and a lot of opportunity within it. It's largely an antiquated industry and therefore there’s a lot of opportunity to help it evolve.”
Take Goodwin, for example. The international law firm announced just last week it was launching a brand new proptech-facing practice. Salil Gandhi, a partner in Goodwin’s technology group, said the opportunities for growth in proptech are “substantial.”
“Real estate clients recognize that technology is fundamentally changing how real estate is used, developed, managed and invested in,” Gandhi said. “Tech companies are at the vanguard of product development that is attractive to real estate owners, investors, and developers.”
Marketing company eRelevance also recently branched into real estate tech, launching its own dedicated vertical. The company’s CEO, Bob Fabbio, is a longtime tech entrepreneur, having previously founded Tivoli and Dazel, which was acquired by Hewlett-Packard.
Fabbio’s entrance into the space is something Peters said she’s seeing more of—experienced entrepreneurs trying their hand at real estate. And according to her, it’s a sign of serious growth.
“An interesting harbinger of things to come is the fact that we have more and more successful repeat founders coming into the space,” she said. “So, it's like, ‘I sold my last startup and I want to do another company, where's the area of biggest opportunity for me right now? Oh, I think proptech is the area that gets my venture money.’”
What Deserves Investment
The initial phase of proptech focused on mostly residential real estate and consumer-facing tools, but the innovations have broadened in recent years. Tools for commercial investors, landlords, property managers, builders, developers and even municipalities are hitting the scene at alarming rates.
But with so many areas to invest in—and so many changes still to be made in this antiquated industry—how do VCs decide what to pour their cash into? According to Kurt Ramirez, general partner at proptech-focused Nine Four Ventures, it’s more about the people than the idea.
“The first thing we look for is an outstanding team,” Ramirez said. “Leaders who can recruit a talented team and have a firm grasp on the market, a clear vision and the wherewithal to know how and when to make changes is table stakes. Building a successful, legendary technology is incredibly hard, and layering on the nuances of the real estate industry makes it even more so, that a team that’s anything less than great is too much for us to get over.”
VCs are also looking for tools that create new monetization strategies, improve efficiencies of existing systems or solve a major industry problem. That last one is especially important for Freedman.
“At the crux of it, there has to be a problem that the company is solving,” she said. “I see a lot of companies that are a nice solution looking for a problem, and clearly, that's not going to ever get anywhere.”
Freedman said Moderne actually looks for ideas outside of the real estate industry, too. Many existing innovations can be retooled and applied to current problems in the sector—like Freedman’s previous portfolio company DocuSign. The tool, which allows for digital signatures of legal documents, is now one of the most widely used tools in homebuying.
“That's not a company that you would call fintech or real estate tech or insurtech, but certainly it's got applicability across all of those,” Freedman said. “We get really excited about those that are not necessarily linked to the industry but can be very applicable to it.”
Seeing The Future
According to Peters, MetaProp sometimes invests in what she calls “moonshot ideas”—ones that could completely disrupt the status quo and turn the industry on its head.
With these innovative ideas on the table—as well as what’s already coming down the pipeline—the real estate industry of tomorrow is poised for serious transformation. From evolutions in how we buy, sell and finance homes to how buildings are constructed, managed and utilized, according to these investors, big change is afoot.
On the buying end, mortgage alternatives—some of which allow buyers to sell shares of their home equity or rent their property on Airbnb for cash—could be a real game-changer, according to Peters. Hybrid hotel-short term rental models (like WhyHotel or Guild, for example) could also stand to challenge renting as we know it.
“I think that we'll see a reinvention of the way people think of homeownership,” Peters said. “We're also starting to see these interesting trends around, will people even want to lease homes in the form that they currently lease them today? Will there be an increasing trend to have short-term leasing options?”
There will also be changes to how buildings are constructed and managed, Ramirez said. Aside from tech streamlining the overly complicated construction process (like Katerra aims to do), Ramirez sad we can also expect smart technology to play a bigger role from the very beginning of a build.
“Right now we’re very gadget-heavy, meaning that if you want hardware to respond to you, such as a home assistant, you need to plug it in and have it sit on your table. Most devices must be retrofitted and installed, which is challenging,” Ramirez said. “In the future, I expect that we won’t see or need to interact with the sensors and technologies that will respond to us.”
Homes will be able to turn lights and music on at the right intensity, open and close shades, adjust the temperature and even feed the dog—all without any interaction from the homeowner.
“The technological enablers to perform each of these tasks will be seamlessly integrated into our walls and living environment,” he said. “And they will be accounted for from the beginning of the construction process.”
This sort of tech integration will be hugely beneficial to property managers, according to Peters and Freedman. Not only will it allow easy control of things like security, locks, lights and other basics, but it could even help monitor energy and water usage, too.
"Both we and our landlords are going to have a lot more information about everything that's happening in the built environment," Peters said. "I think that's actually going to yield a lot of positive benefits in terms of water usage, energy usage, with things like affordable housing. I can totally imagine a world where, at the government level, they'll actually be able to monitor in affordable housing, the heat, hot water availability, occupancy of certain units, just using IoT."