In my lifetime (55 years), I have never seen anything like these times we are living in today. And trust me, I have seen A LOT! The fear, both real and imagined, the threat to people's lives especially those most vulnerable, the social upheaval, the almost certain devastating economic toll has collectively simply taken my breath away. Thankfully, I have a wonderful and healthy family to be grateful for and my own meditation practice to rely on, which has been tested lately like never before :).
But I also have a job to do. A company to lead through these uncharted times. Jobs to protect and new ones to create. And even more importantly, an industry that I love dearly that needs as much help and support as possible, both during this crisis and in the near future. I firmly believe that we as a sector (real estate technology) can and will emerge from this stronger and better positioned for future growth. However, I also know that this will not happen without a lot of pain, difficult choices and the willingness to confront some hard truths about our real estate tech industry as well.
And now that my team and I have finally been able to stabilize our own ship and reposition our events for the Fall (amazing work, team!) and launch some really great new digital products to help companies better market themselves in this environment, I finally find myself with the room to reflect on where we are and where we are going as a young sector.
I have been fortunate to have built so many wonderful, meaningful relationships in real estate tech over the past few years and the ongoing conversations I have been having with many leaders in our industry has also given me a much clearer sense of where things are heading… the good, the bad, and unfortunately the ugly.
So here is my first stab at trying to articulate my thoughts on what this pandemic means to our real estate tech industry and what I think the road ahead might look like. For sure though, given that this is such a fast-moving crisis, any prediction, especially from a college dropout like me, must be taken with a grain of salt.
First, let’s set the stage. I think we all need to be reminded that our industry was fragile to begin with. When I entered the space in 2012, there were a handful of new, emerging startups on the scene and perhaps $50m invested annually mostly from within the real estate industry and some forward-thinking angel investors. Fast forward to last year, where we tracked approximately 7,000 startups which have received funding to date and an incredible $35B invested in the sector globally in 2019 alone. Astonishing.
But let's also be clear that it's never been easier to start a tech company than today (i.e., the cloud, etc.) and money was flush and plentiful. I would often hear that CREtech/PropTech 1.0 was largely comprised of wonderfully built and designed solutions simply looking for problems to solve. Harsh, I know. But in many cases true. I would play my friend Karen Hollinger’s voice in my head over and over when talking about the startup landscape and she was would say... “Tell me what the ROI is if I adopt their technology?!?” :)
We aren't an industry with the likes of Amazon, Google or Facebook dominating it. (Thank goodness). We are more like Silicon Valley in the 1970’s than Silicon Valley in the 2000’s! But we also experienced frothy times with valuations that had no connection to reality and founders who had never weathered market cycles, didn't have the discipline to hoard cash or build sustainable business models in order to survive when the party eventually ended. Again, not trying to be an asshole and this isn’t meant as a broad/universal statement, just saying there was a lot of silly money chasing silly investments that didn't make sense even in the best of times.
So we all need to be honest with each other that our young sector simply didn't have the legs and sound footing to begin with. Adoption was still very low given the size of the industry. Most real estate companies were making so much money in the greatest bull market in history that tech was “nice to have” but not “need to have”, in their mind.
Well, it literally seems like I woke up one morning and the entire industry has been turned upside down. And most of the people I admire and respect tell me the same. Now those startups that don't have the runway are also looking at revenue drying up and are fighting for their survival. Those with cool features and solutions, that are focused on creating greater experiences for customers, have to rethink their value proposition. Models that were propped up only because of obscene amounts of funding will collapse without it. And yet now a whole new category of technology applications that couldn't get anyone’s attention pre-pandemic will likely find themselves in greater demand than ever before.
So given all that is happening in the economy, in the real estate sector and in our young industry, here are my preliminary thoughts on what I think we can expect going forward.
First, let me state unequivocally that I do not think business is automatically coming right back to any sense of normalcy in our industry. Real estate represents the largest industry in the world and when the economy suffers, it takes it on the chin. People who lose their jobs can't afford to pay their rent, buy new homes, spend on appliances, pay for gym memberships, go shopping at malls, travel to nice hotels, do home repairs and so on.
And companies laying off employees and with reduced revenue have lower head counts, need less space, need more rent concessions and so on. It’s a ripple effect through leasing, sales, construction, new development, financing, etc. and every segment of our industry will feel the pinch.
One area we might see a boom, however, is in investment sales as more distress causes more defaults and subsequent transactions. And clearly the boom in digital purchasing by consumers means more logistics demand of course.
And unfortunately, many real estate companies will also respond with layoffs of their own so their head counts will be lower and therefore their ability to vet, invest and adopt in tech will also move to the back burner. They will also be so focused on their own damaged balanced sheets that investing in new tech tools won't be top of mind even though we all agree it should be.
I also believe that things in Corporate America won't return to normal for a while. The fear, speed at which revenue for businesses across the board just collapsed seemingly overnight and the concern for employee safety will absolutely cause businesses both big and small to rethink the workplace as we know it. Flex time, remote work and more dispersive operations will likely be the norm for awhile. Things like employee wellness, internal communications, operating efficiencies with fewer employees and disaster planning will gain in importance. Yes, this mentality is here to stay. One of the leading VC’s in our sector said to me the other day, “The office market will permanently be impacted by this pandemic.” That is 100% correct in my mind as Corporate America will completely rethink their approach to office occupancy.
The pandemic will therefore fundamentally impact how corporations spend, locate and operate space for the foreseeable future. When things do stabilize and the economy begins to regain its footing (who the hell knows when that will be), business leaders won't forget the scare they just went through and the majority of them will rethink A LOT. When so many companies lose so much ground so fast, it leaves a lasting impact. CFO’s will now be the center of the recovery for every company that survives and the decisions they make will be less about what’s “cool” and more about “coronavirus proof”.
And so the customers we are all “selling” tech to (landlords/developers, investors, brokers, asset managers, financial institutions, etc.) will be facing real contraction and financial pressures for the first time in years. What is therefore their motivation to be adopting and investing in tech???
Well, for the right tech, actually plenty!
And there lies the opportunity to build the next “real” Unicorn! But what will that be?
- Anything that is digital, frictionless, involves less manual intervention in areas like market research, marketing, data collection, asset/deal management, financial products like insurance and appraisals, transactional/leasing platforms and marketplaces, mobile payment, building access, property management, tenant communication, energy efficiencies, etc. will move to the head of the adoption curve. Sadly, less people means less exposure risk.
- VR/AR/Digital wins! IT’S GO TIME, BABY! Finally this niche has the impetus it has needed for the industry to embrace it. You can expect a flood of new tools and applications, but to me, that's a good thing!
- Construction tech will be a huge winner! Cost savings and controls that help eliminate waste and accelerate stalled projects will be in higher demand than ever in an environment where efficiency, speed and savings in development now matters more than anything.
- Consolidation and finally the “Bloomberg of CRE” emerges. Now more than ever, landlords and brokerages will say, “I want one end-to-end portal for EVERYTHING”. There are a few forward-thinking startups I know that are already working on this and many already out there like Procore, RealPage, Yardi, LightBox, Accruent, Building Engines, Altus Group and MRI Software but new ones will finally emerge.
- IoT IoT IoT! Talk to me, buildings!!! Useful data from connected devices will be in greater demand than ever as companies will need intelligence on how the facilities are being used, by whom and when.
- Smart/connected cities will also now feel the sense of urgency from their constituents to improve communication, emergency readiness and also multiple modes of transportation.
- Robotics and 3D printing will become increasingly in high demand. Now more than ever, the industry will look at solutions that help it become more efficient and less reliant on manual labor.
- Platforms will finally emerge as dominant on-line leasing and trading tools every professional uses to conduct their business virtually and with speed/precision. Brokers in particular will be forced to use an end-to-end digital solution to complete a transaction from start to finish.
- And I am sure I’m leaving out many others.
To summarize, innovation will actually be the big winner that emerges from the ashes of this historic time we are living in. I wish it were for different reasons but that's not something I or anyone can control. This pandemic and economic crises will finally provide real estate companies with the urgent mandate and impetus to adopt technology in a real and sustainable manner. They will have no choice but to embrace technology as it is the only way they can mitigate the damage from the next pandemic, which if you believe the medical community, is something that is not just a question of “if” anymore but “when”.
Any real estate company that doesn’t put a great sense of urgency on developing their own innovation strategy to prepare themselves for the new reality we are all living and working in is simply not future-proofed.
And any real estate tech startup that is not already working on their own 2.0 version where they have rethought their entire value prop, product offering and market fit simply will not survive. If they are “riding out the storm”, this storm will destroy them in time.
I expect that CREtech/PropTech 2.0, while challenging, painful and scary as hell, will be the most exciting and vibrant time to be in this sector. It's time to rethink EVERYTHING, especially our entire industry. But it's also a time where great innovation, progress and people will emerge victorious.
I have no doubt whatsoever!
I hope this was helpful for you as you navigate your own journey during these challenging times.