The pace of innovation in real estate has continued to grow as industry actors, entrepreneurs, and VC funders search for the next true “disruptor.” In 2017, VC funding jumped 200% to $12.6bn, up from $4.2bn in 2016[i], a testament to the potential that the VC community sees in real estate. As tech innovation continues to infiltrate all aspects of the industry, it is becoming increasingly important for CRE professionals to stay abreast in order to remain relevant. Technology in real estate has impacted many aspects of the industry, such as fundraising, sourcing deals, and managing tenant relationships. Over the coming months, the Cornell Real Estate Review editorial staff will be exploring the world of PropTech (otherwise known as CRE Tech or RE Tech). This article is intended to give our readers an overview of PropTech in order to provide context for our real estate technology series.
What is PropTech?
Andrew Ackerman, Managing Director of Dreamit UrbanTech, (a tech incubator focused on Real Estate that is partnering with Strategic Property Partners’ $3bn downtown Tampa development) defines PropTech as: “technological solutions that solve problems for the real estate industry.”[ii] PropTech has emerged as a category of innovative, technology-based solutions for real estate – many of which aim to transform elements of the industry.
In a recent interview with Bisnow, Nathan Dever, VP of Strategy & Marketing at Ten-X (a popular online platform that facilitates residential and commercial property transactions), outlined a brief history of PropTech:
“The makings of PropTech began in the mid-1980s, marked by the founding of companies that provided software for the commercial real estate industry. Autodesk and NCREIF in 1982, Yardi in 1984 and CoStar in 1987. However, PropTech didn’t really spring to life in a big way until the mid-2000s, when cloud computing, broadband connectivity and mobile devices enabled residential PropTech giants RightMove, Trulia and Zillow to launch and show investors the value of disrupting real estate through technology. Since the mid-2000s, more and more PropTech startups have been bringing new technologies to market that address a wide variety of inefficiencies, scoring more attention and capital from technology VCs and growth funds, which legitimizes the real estate technology movement.”[iii]
Some of the first-movers in PropTech are today well-established tools that the CRE industry relies on. As PropTech emerges as a category, and with the level of funding that real estate tech startups have recently attracted, there is little doubt that the industry will change with the success of PropTech startups. PropTech has thus far focused on aggregating and utilizing CRE data, creating platforms for CRE transactions – in the form of both listing services and auctions, simplifying valuation and lending, leveling the playing field in financing, and developing new tools both for engaging with tenants and for facilities management.
Organizing PropTech Offerings
With the level of funding directed at PropTech, new startups are being formed constantly. One framework being used to structure and organize PropTech startups has been put together by Dealpath, a deal management platform for CRE investment. Dealpath categorizes solutions as aiding either real estate discovery, transactions, or property management[iv]. In addition to these three broad categories, there are organizations promoting the disruption of city planning (led by the likes of Google’s Sidewalk Labs) as well as real estate related FinTech startups that aim to change the actual vehicles through which transactions are executed – using blockchain-based cryptocurrencies, for example.
Dealpath’s framework highlights the breadth of services within the CRE industry that are being impacted by PropTech. With Dealpath’s categorization, we can take away that PropTech isn’t just creating “nice to have” tools or platforms that open up real estate to aspiring investors, it will impact nearly every role in the institutional real estate value chain.
Why Explore PropTech?
In general, organizations are built to optimize operations. Companies obsess over performance improvement in an attempt to draw incremental benefit, either cost savings or revenue potential, from their operations. Few companies take the time to take note of the changing world around them. The result: the business world is left with countless examples of organizations and leaders that act as cautionary tales to not ignore innovative entrants.
Real estate will be disrupted. It is impossible to predict when, how, or to what magnitude, but there is little doubt that the industry will undergo transformative change in the years to come. In time, PropTech solutions will develop, uncover, and monetize intersections between CRE and technology with tools such as virtual reality, blockchain, and machine learning. Value creation in the real estate industry is largely driven by the combination of relationships and data asymmetry. It is not difficult to envision solutions that shift the industry towards efficiency by increasing market transparency in a way that fosters data-driven decision making, reducing the reliance on relationships and the instance of informal information. Commoditized data and a reduced reliance on the “who you know” model of real estate would drastically lower the barrier to entry for aspiring real estate actors. Not only will this introduce a new wave of competition within the industry, it also has the potential to result in true disruption that might replace long-established roles in the real estate value chain. As our operating context evolves, it’s critical for real estate professionals to take advantage of emerging technologies in order to remain competitive.
[i] https://commercialobserver.com/2018/01/vc-funding-in-real-estate-tech-leaped-to-12-6b-in-2017-report/
[ii] https://www.bisnow.com/national/news/technology/the-beginners-guide-to-cre-tech-what-exactly-is-proptech-81685?utm_source=CopyShare&utm_medium=Browser
[iii] https://www.bisnow.com/national/news/technology/the-beginners-guide-to-cre-tech-what-exactly-is-proptech-81685?utm_source=CopyShare&utm_medium=Browser
[iv] https://www.dealpath.com/content/cre-software-tech-services-landscape/
