As an industry that has historically thrived primarily on building personal relationships, real estate has been relatively slow to embrace the technological boom brought forth from the internet. While companies such as Zillow and CoStar have helped make data more accessible to the masses, there has been a noticeable lack of innovation and creativity in the new platforms in the sector. For this article, we spoke with two individuals who are looking to modify the way real estate uses technology. Daniel Rosenzweig of KettleSpace and Scott Trench of BiggerPockets are both members of disruptive technologies in different real estate sectors.
Daniel is the founder of KettleSpace, a unique new concept looking to innovate the flexible co-working space. His first exposure to co-working came through his role underwriting and executing on millions of square feet of co-working space for one of the largest companies in the industry. He then had an idea to create co-working space out of existing, unused assets. His first space, utilizing a restaurant in Manhattan during the day, gained traction very quickly. Less than a year after the idea began, Dan has already landed partners and expanded into a second space for his business.
KettleSpace is an example of an innovative and disruptive force emerging in real estate. According to Dan, “We’re aiming to ensure the future of real estate focuses on adaptive reuse of existing assets and the end user experience. Traditionally, owners have been the only ones thinking about the highest and best use of their real estate. Our goal is to ensure that tenants are thinking that way, too.” The company attracts all sorts of industries looking for kinship and community, from coders to producers, consultants to marketers, photographers to VCs, and big-data analysts to app developers.
Dan has had his fair share of challenges in his role as an industry shaker and mover. “The largest challenges we have faced to date have been, not unlike most new business pursuits, educating the market around working in what has previously been deemed a place strictly for dining,” he observed. “They have no qualms working in a coffee shop, but when the space is called a restaurant, they are hesitant. Once they come and see the space in action, their perception quickly changes. But that is a bit of a hump we have to get over, and is one of the more fun parts of bringing a product to market that is truly different than what exists in the marketplace today.”
Like Dan, Scott Trench is part of an emerging technology looking to disrupt the way real estate runs. As the Vice President of Operations at BiggerPockets, Scott helps with the development of new and existing revenue streams, community management, and other forms of planning for the company. While KettleSpace aims to impact the stock of co-working space on the market, BiggerPockets is trying to democratize real estate and make it more accessible to people hoping to create a form of semi-passive income. To do this, BiggerPockets provides forums, tools, and resources to allow investors to make better decisions with respect to property analysis and management. Sample forum topics that take place on the site include, “Financial freedom through real estate investing,” “How to rent your house”, “Best way to invest large five figure and small six-figure savings ($50K, $75K, $100K, etc)”, “Success stories” and “Tenant management problems.”
BiggerPockets is disruptive in its goals of influencing real estate as it aims to make commercial real estate more accessible to middle-income individuals. This is reminiscent of a new, popular concept in real estate called crowdfunding. which allows one to pool together money from many small sources to fund a project or idea. On the topic of crowdfunding, Scott says that “crowdfunding is fascinating to me and I’ve watched this industry explode over the past few years. Around a dozen crowdfunding portals are clients of mine that advertise to the BiggerPockets audience regularly.”
While crowdfunding seems like a fantastic way to raise equity for a project, Scott points out that the crowdfunding concept is actually competing strongest with hard money lenders looking to provide short term debt. He points out that “just a few years ago, a Hard Money Lender would typically be described as a high net worth individual lending to local flippers in his/her area. Often, the Hard Money Lender might have been a former house flipper himself, and as you can imagine, that gives him/her an advantage if things went poorly. Lately, these Hard Money Lenders have been competing with large national lenders that are entering this lending environment attracted by the high-interest rates and points that they can charge on loan origination. More specifically, crowdfunding portals are entering this space – like LendingHome. When you can offer an investor a less than one year, 10%+ interest rate collateralized by real estate, you offer a very attractive investment vehicle, especially if you can repeat that performance over and over and over again. I remember when many of these portals were struggling to look for money and investors to fund their loans. These folks would come to BiggerPockets, hoping that our real estate investors would invest money in their platforms. Now, they seem to have all the money they could want, and are hungrily looking for borrowers to lend to.”
While they are in separate types of industries, Dan and Scott share many similar views on the future of technology in real estate. Dan is excited to see if virtual reality, or VR, can finally cause a major disruption in real estate. “Brokers have been very good at holding onto their monopoly of access and have benefited from the fact that to date, there is nothing quite like walking a floor yourself. VR should change all that.” Scott, on the other hand, sees technology as having a bit more of an incremental impact among many sectors. “Real estate tech is changing the industry, but not as much as they’d like to have you believe. I say that even as I represent a real estate tech company. Real estate investors still have to conduct market analysis, manage tenants, enforce their leases, and market effectively. It is the tactics, not the fundamentals, that are changing in this industry. This is especially true for the individual landlord, versus large property management and commercial companies. That’s the beauty of real estate investing. Managed correctly, consistently, and conservatively, real estate is a boring stable source of income and a great long-term way to build wealth through appreciation and loan amortization.”
Ultimately, real estate technology has lagged but sees some incredible potential growth incoming in the next few years. Whether it is through directly impacting the supply of space, like KettleSpace plans to do, or creating a community to make real estate more accessible to the masses, as BiggerPockets intends to do, technology is needed to help bring an archaic industry into the 21st century.