Recently, technology has transformed industries by streamlining processes, increasing accessibility and in many instances propelling civilization forward. Therefore, it stands to reason why real estate technology has become a burgeoning space that is metamorphosing the way we live. New enterprises surface around the world daily—especially within the continental United States. This Property Matters article explores major trends in real estate technology and the entities invested in pushing the needle of progress forward.
COMMERCIAL REAL ESTATE TECH—MORE THAN BUILDINGS AND PEOPLE
As reported in the Wall Street Journal on the topic of real estate, “The industry sits at the intersection of some of the biggest shifts taking place in business, as smart cities, mobility, fintech, robotics, and cognitive automation advance at an accelerating pace.1” Additionally, real tech company launches have exploded from 176 in 2008 to an expected 1,275 by 2047. Investors are bullish on their capital investments in the real estate technology sector. Cumulatively, investments are expected to grow from $2.4 billion to $33.7 billion over the same time span.
THE SOURCE OF THE REAL ESTATE INVESTMENTS STREAM
According to a report from real estate tech research and marketing agency, Re: Tech, global venture capital investment in real estate technology sector reached $12.6 billion in 2017, nearly a 300 percent increase in 2016 and $1.8 billion in 2015. The investment in 2017 was boosted by SoftBank’s enormous $4.4 billion investment in the 800-pound gorilla, WeWork and the $550 million raised by residential listing brokerage Compass.2
Notably, venture capital firms remain the dominant funding source for startups, but substantial capital is flowing from other investors. This includes real estate investment trusts (REITs), established real estate service companies, private equity firms and high net worth individuals.
Real estate families are also heavily involved, which include but not limited to, the LeFrak’s, Rudin’s, Wilpon’s, Silverstein and Milstein. Many of these families and companies have formed an informal network to streamline the investing process and provide a few promising tech companies with access to their industry relationships, customers and diverse portfolio.
Forbes reported that “While the bracket of real estate listing services continues to expand and diversify,” the standout company of last year has been the luxury real estate sales service, Compass.3 Compass works primarily as a listing service but also as an extensive network of real estate agents, making it easier to connect people to prospective houses than ever before. Last year, Compass secured a $450 million investment from SoftBank Vision Fund, according to Compass, the largest real estate tech investment in U.S. history and now has raised $775 million in total.
NATIONWIDE COMMERCIAL LISTING SERVICES ARE GROWING
On the other side of the coin, nationwide commercial listing service companies that helps brokers and tenants to connect for office, retail, industrial, flex, and land listings are increasing. Two industry front runners are officespace.com and squarefoot.com. Additionally, many of the leading real estate service companies, which include CBRE, Cushman & Wakefield, and Colliers International have become very active in this technology marketplace. REITs and real estate companies, including Brookfield, Equity Residential, Prologics, Hines and Macerich are active in this marketplace.
CBRE Group is the world’s largest commercial real estate services and investment firm and is an anchor investor in Fifth Wall Ventures. CBRE sources and grows new entrepreneurs and technologies for the tech industry. CBRE has doubled its annual technology budget and tripled its spending on the enabling side of the business.
TECH-ENABLED HOUSE FLIPPING
Real estate technology companies have successfully leveraged ad-based residential real estate sites, which include Zillow, Trulia, StreetEasy, Redfin and more. These, and other companies, have used technology for over a decade to advertise listing, provide tools to improve agent efficiency, or alter the agent’s role in the home sale. Today, a new group of startups is employing data and operational efficiency for a different real estate use case, to price and purchase homes outright. In this model, a company purchases a home directly from a homeowner, improves it, and lists it on the market as fast as possible. One of the leading companies in the direct home-buying space is Opendoor Labs, which has raised $320 million in just three years.
More than $3 billion was invested in construction tech as startups working on construction design, team collaboration, and project site management, as well as companies using drones and big data analytics to transform the traditional mapping and surveying of construction.
As I reported earlier prominent members of the NYC real estate community have made significant investments in technology. Rudin Ventures, owned by the Rudin family is an early investor in WeWork, Honest Buildings, Latch and Radiator Labs. Joining Rudin in the investment in Honest Buildings, a project management platform that helps ensure developments are completed on time and on budget are Brookfield Property Partners Milstein family’s Circle Ventures.
As reported in Leaders Magazine, Howard Milstein, chairman and chief executive officer, New York Private Bank and its operating bank, Emigrant are very active in tech. Developed in conjunction with the Milstein family, Grand Central Tech (GCT) is New York City technology accelerator, designed to support start-ups an entrepreneurial ambition. “Unlike traditional incubators, Grand Central Tech takes no equity in the companies selected and charges no rent for the entire first year at 335 Madison Avenue.4"
Another active player is Silverstein Properties who in 2005, launched Silvertech Ventures, a venture capital firm that houses startups in7 world trade center free. Silvertech has made investment in companies which include Fundrise, the Guarantors, CityHive and Cinch.
One thing is certain, advances in real estate tech is here to stay and grow in the 21st century. Contact your Friedman LLP tax or accounting advisor for answers to any questions you have regarding real estate, here.