“To improve is to change; to be perfect is to change often.” Winston Churchill
Proptech’s potential to drive positive change in commercial real estate is substantial and well covered in the press. Aside from the associated potential for noise or more splash than actual water, technology continues to provide examples of incremental changes in our lives and businesses. Commercial real estate affords many of these examples.
While many proptech investments have been made, widespread adoption remains a challenge. “Technology must effectively solve a problem and the implementation must not be overly disruptive,” says Keith Van Arsdale, President and CEO, BMC Capital.
Commercial real estate has a unique set of characteristics which create a rather slow-moving change framework for problem-solving. The industry is fragmented although consolidation is a continuing trend. A challenge for lenders is collaborating across all the different types of products (agency, banks, CMBS, Insurance, Credit Unions, Funds) and all their varied processes. Some initiatives are underway to address the need for standards across product types. The Mortgage Industry Standards Management Organization (MISMO) is a standards development body for the mortgage industry. It has a track record of successful initiatives, and its commercial/multifamily members are currently focused on appraisal standards and ESG.
The Counselors of Real Estate’s report, Top Ten Issues Affecting Commercial Real Estate Report notes, constant themes like artificial intelligence, machine learning, the Internet of Things, and cybersecurity remain part of the landscape. They have moved from “new” to “how we do things now.” This year the news is not about new tech, but about our acceptance of it. Lockdown-driven changes in our work, in the economy, in social structures, and in our personal behavior have pushed our reluctance aside.
If you don’t note a hint of exuberance, consider venture capital firm Metaprop’s year-end 2020 survey released back in March.
•The Investor Confidence Index is 9.2/10, a record high, up from a previous ceiling of 8.8 in mid-2019 and fueled partly by the momentous performance of Proptech companies in the public markets in the second half of 2020.
•The Startup Confidence Index is 7.7/10, the highest recorded level to date. The acceleration of the adoption of technology in Real Estate caused by COVID-19 has created new opportunities for existing proptech companies, as well as an environment of innovation and growth.
COVID-19 turns change management upside down
What were the technology lessons learned during the first year of COVID?
With the inability to meet customers face to face, businesses got comfortable with using Zoom for meetings, attending virtual conferences, and even completing virtual property tours or inspections. While these substitutes won’t replace human contact, they’ll remain a supplement and change the cost benefit analysis of business travel. Further, other tools that drive transaction participant’s value proposition may remain more of a focus. This may include various types of solutions including but not limited to data, research, or analytics.
How has company’s ability to accomplish adoption changed because of COVID?
The adoption question really boils down to fear of change vs. fear of missing out. Is a company more driven by a “this is the way we’ve always done it” mentality or by concern that competitors will adopt first?
There isn’t one industry, but rather a series of companies, people, and ecosystems. A new company’s technology framework or options may be different than one founded in 1995. And that isn’t to say that all legacy firms are behind the eight ball and start ups are savvy, it’s complicated. The corporate culture and tolerance for innovation and change are very different from company to company regardless of the size or the newness of the company. There are multiple generations in the workplace and some segment of any one group may or may not feel comfortable with technology tools and substantive changes.
What’s the deal? Transactions have consequences.
Below are five recent transactions that provide some context with potential implications for landscape and outlook. They involve property-level data, automation, and valuation.
Thoma Bravo Purchases RealPage (announced December 2020)
“Thoma Bravo has followed RealPage’s success in the real estate industry for a long time. The company’s exceptional products and commitment to innovation allow it to maintain its prominent position in an industry undergoing an extensive digital transformation,” said Orlando Bravo, Founder and a Managing Partner of Thoma Bravo.
“As a firm, we embrace these fundamental shifts in industries where software driven solutions are making meaningful advancements and we have the expertise and resources to help grow these capabilities at companies like RealPage. We believe our partnership can accelerate RealPage’s momentum as it innovates on behalf of its customers.”
Catalyst (announced January 2021)
Moody’s Corporation has acquired Catalyst, Inc., a provider of commercial real estate solutions for brokers. The acquisition substantially enhances Moody’s Analytics’ coverage of property-level data and expands its range of analytical solutions to the broker market.
“Catalyst offers deep insights into CRE markets through its impressive scope and coverage, intuitive user interface, and innovative research services for brokers,” said Stephen Tulenko, president of Moody’s Analytics. “The acquisition of Catalyst complements Moody’s analytical capabilities and augments our growing suite of CRE tools that integrate rich and relevant data with powerful analytics.”
TapCap (announced June 2021)
Commercial real estate financier Walker & Dunlop (W&D) has continued its recent campaign of M&A activity with its purchase of financial technology company, TapCap, W&D announced June 25.
The addition of TapCap marks yet another move in the firm’s five-year growth strategy, this time to help further automate loan application and origination through a proprietary software that provides real-time quotes for multifamily loans, with the goal of making the borrower’s experience easier and more transparent. The purchase is seen as a move to help it reach its ambitious goals in small balance loan origination.
Bowery Valuation (announced June 2021)
Bowery Valuation, a New York-based technology-enabled commercial real estate appraisal company, raised $35M in Series B funding. The round, which brought total funding to date to $66m, was led by Growth Equity business within Goldman Sachs Asset Management with participation from Capital One Ventures and existing investors Builders VC, Fika Ventures, Navitas Capital, Camber Creek, Nine Four Ventures, Greenspring Associates, and Alpaca VC. In conjunction with the funding, Jade Mandel, Vice President in the Growth Equity business within Goldman Sachs Asset Management, will be joining the board of directors at Bowery.
Lev (announced July 2021)
Lev, recently announced a Series A round of $30 Million led by Greenspring, with participation from First American Financial. The round was joined by existing investors, including NFX, Canaan Partners, JLL Spark, Animo Ventures and Ludlow Ventures. The amount raised is one of the largest to-date in the commercial real estate financing space and will further Lev's mission to help commercial real estate investors get the best financing for their properties by combining the collective knowledge of Lev's expert team with hundreds of millions of data points. The funds raised will primarily be used to expand Lev's team, in their New York City HQ, Miami R&D center and Los Angeles outpost, as well as through remote positions. Continued investments will be made in product development and to expand Lev's services. Lev closed approximately $100 million of loans in 2020, their first year in existence, and is projected to close over $1 billion in 2021.
Five key areas to watch
- Enhanced property data & analytics—user-friendly access to reliable sales/leases, occupancy, absorption, & owners/tenant information); tools to assist various businesses with screening, underwriting and expense/revenue management; tools to efficiently source/evaluate new business opportunities.
- Investment monitoring and surveillance tools which contribute to asset management professionals and capital providers.
- Workflow tools that simplify labor intensive processes such as managing construction projects, sourcing leads, or analyzing financials. Commercial real estate market participants are still learning how to use technology such as artificial intelligence to do a variety of simple, repetitive tasks.
- Listing platforms for commercial real estate sales. Assists with marketing companies, properties, or space for lease.
- Tech enabled providers as start-ups or legacy firms whether it be landlords, appraisers, brokers, or other service providers.
Andrew Foster serves as an Associate Vice President at Mortgage Bankers Association. He is based in Washington, D.C. and can be reached at [email protected]. The views expressed herein are those of the author and not necessarily the views of Mortgage Bankers Association, its management, its subsidiaries, or its other professionals.