What did we learn at EY’s 2019 REIT Finance and Tax leadership conference

Last week I hosted our 17th annual REIT Finance and Tax leadership conference where 330 real estate professionals converged in Austin, Texas to participate in our two-day program. It was fantastic to bring together a roster of speakers from all facets of the real estate sector to discuss many of the latest trends.

Director of MIT’s Real Estate Innovation Lab, Dr. Andrea Chegut opened the program, sharing insights on the impact of automation on the built environment – we also recently held a webinar on the topic. You can listen to the replay here. It was fascinating to learn of the $200+ bn that VC’s invested across all industries in 2018, 50% was invested in solutions around automation. Given that real estate represents 16-20% of Global GDP, our sector could be significantly impacted by this trend. 

We also heard from Mark Grinis, our Global Real Estate Leader, and Jason McCann, CEO of Varidesk who discussed an innovative, new business model for delivering Space as a Service. Their solution Varispace is a new office concept designed for tenants interested in sustainability, flexibility and employee experience. It includes a simple white space with concrete floors, outfitted with moveable, Plexiglas walls that can be erected in days to build out a space. With this design, the cost and time taken to build out a space goes from months to weeks and altering the configuration of an existing space can be done in a matter of hours. The fact that the walls can be re-usable and the buildout doesn’t end up in a landfill also makes the solution highly sustainable.

PropTech – high on the agenda

PropTech dominated much of the conversation on Day 1 and with $25 billion invested in the sector thus far in 2019, it’s a topic that’s going to continue as technology solutions come to the fore. We were delighted to have Michael Beckerman, CEO of CRETech with us, to discuss perspectives from the leading venture capitalists in PropTech from Fifth Wall (Tyson Woest), JLL Spark (Eric Whitman), Navitas Capital (Travis Putnam) and Corigin Ventures (Ryan Freedman). At $17 trillion in annual global spend, real estate is one of the biggest businesses in the world that software companies have, thus far, generally ignored.

Over the past five years the tech world has attacked the sector, investing tens of billions. It is clearly ambitious to attempt to solve the entire problem set for real estate development and operation, so the focus today is on solutions designed to raise rents/increase occupancy or lower operating costs. There was a clear theme that in addition to these NOI considerations, the users of space are the ones who initiate the changes in delivery of space, so solutions that deliver sustainability (think ESG rating), efficiency, and tenant experience are a high priority for investment. Interestingly enough, the results of our recent REIT CFO survey indicate that about ½ of REITs have either invested in PropTech solutions or are in the process of evaluating alternatives, while the balance intend to allow others to pioneer the investments in the space.

We followed with a conversation among leading PropTech companies, including VTS (Josh Evans), Dealpath (Mike Sroka), Cherre (L.D.Salmanson) and Reonomy (Aviva Fink). It was very interesting to observe the collaboration between these companies throughout the conversation as they all compete for data and customers in the real estate sector. I wondered why these companies spend all this time in R&D dollars to capture billions of data points in a proprietary fashion for sale to end users, and then share that information with other PropTech companies to allow them to advance their agendas. It was clear that the attitude of data sharing was considered “generational” and they believe transparency and exchange of information is essential to capturing the value of the business.

Future of real estate as work and retail evolves

The future of the industry was another core focus of our program and we explored a number of issues:

• Future of Data - led by EY’s Josh Herrenkohl
• Future of Work - led by EY’s Mark Gibson
• Future Consumer and their impact on the built environment - led by EY’s Henry Stratton.

Our Future consumer panel with EY’s Marcie Merriman, Meredith Darnall (Brookfield Properties), Ryan Keathley (GLP), and Jeff Thornton (Duke Realty) discussed how changing demographics and changes in consumer behavior will continue to have a profound impact on the sector as the younger generation’s focus on maximizing the use of resources, time and money will clearly impact how products and services are delivered in the future. Meredith Darnall shared that while the Millennial Generation enjoys food, travel and entertainment experiences, Gen Z’s form of entertainment is more learning focused…what Meredith refers to as “edutainment”. An interesting insight that there is an expectation that retail offerings will include many more experiences around learning in the future.

Marc Smernoff, CFO of Americold, and Robyn Werner closed the program discussing Americold’s rise to the top of the cold storage and logistics business. Marc was clear that taking a non-traditional company to the public REIT markets is something that takes a lot of time in preparation and a lot of messaging to make investors and analysts comfortable that they understand the economics of the business. This was an important message to those thinking about accessing the capital markets in the US as most future offerings will predominantly be in the non-traditional space.

In addition to tax, accounting, market and economic updates, we also covered some very important developments in digitization or tokenization of real estate, the latest in environmental, social and governance, and Non- Traded REITs, among others. For more on many of these topics and other topical REIT issues, read our insights in EY’s digital REIT magazine

Thanks also to the outstanding speakers who joined us in addition to those mentioned above from Colony Capital, Gensler, Greenstreet Advisors. Hines, ISS, KBS Realty Advisors, Latham & Watkins, Morgan Stanley, NAREIT, The Peterson Institute of Economics, and Spirit Realty Capital, Templum, TQ Tezos, and TokenSoft.