An Alternative Angle

June 21, 2016 AdaPia d'Errico

GARAGE-STYLE INNOVATION --

The Role of Technology in Buying, Selling and Leasing Real Estate

We all know the model of the heroic “garage-scale” startup. The iPhone in your hand famously started in a garage, and so did the Wright brothers back in Kitty Hawk when the level of “tech" was more about fixed wings than circuit boards. There was even a garage setting used in the financial meltdown film, The Big Short to establish the outsider bona fides of two of the characters, as well as the notion that they could see what those who were more established could not.

There is no denying that innovation is the new normal and even a mandate for companies that want to evolve, grow, and thrive in an increasingly fragmented, complicated, and tech-enabled world. But how does an already established company replicate that kind of “garage-scale” fearlessness, especially if they’re looking to innovate in a business like real estate, that finds, buys, sells, leases, manages and finances those “garages” as well as other kinds of property?

While many industries strive for innovation, they may not all be well suited for it. Some sectors like mortgage finance encounter regulatory or structural impediments, which make the very act of innovating more challenging. But even in markets like commercial real estate, often regarded as mature to the point of ossification, innovation is still possible.

COMMERCIAL SECTOR IS RIPE FOR INNOVATION

U.S. commercial real estate is a $12 trillion industry with a significant percentage of revenue concentrated in a handful of REITs and brokers controlling extremely high-value assets. Until very recently, these firms were reliant on outdated legacy software and, in some cases, even pen and paper to manage their vacancies and schedule tours for prospective tenants.

However, technology verticals have emerged in finance-- now commonly known as “fintech”, which represents innovation in areas including payment processing, bitcoin, blockchain, asset management, investment and lending.  There has also been a smaller, less talked about, but equally important surge in real estate tech startups, a sector known as RETech. Real estate professionals are becoming the focus for dozens of technology companies using data, analytics, modeling, apps and online distribution channels from other fields to create more efficient processes., Prime among these are speed to market and accessibility for those professionals and their clients.

Among them are companies like VTS and Hightower that are revolutionizing the commercial real estate industry by centralizing a firm’s data in a single cloud-hosted database and making it the system of record for agents to manage their workflows and customer relationships. Their services are used to manage billions of square feet of real estate, and provide landlords data such as trends across buildings and marketing performance, while brokers can use the tools to manage leasing pipelines.

ACCESSIBILITY IS KEY

The other ongoing hallmark of such innovation is making the macro immediate, localized, and accessible.  On that theme of accessibility, it seems natural that real estate professionals, due to the on-the-go nature of their jobs, would need mobile apps to stay in touch with both lessors and lessees, clients, and their service companies, while still in the field. to get “real time” changes in terms of space or unit availability, prospective tenant interest, financing terms, etc.

Data analytics platforms like San Francisco-based Rentlytics give owners and managers greater transparency into the performance of their portfolios, both on an overall basis and at the level of an individual asset. They do this by identifying which buildings in a portfolio are having difficulty maintaining target occupancy rates and drilling down to address root causes, through which landlords and portfolio managers can improve profitability.

Meanwhile, companies like Nestio and On-Line Residential bolster the marketing and lease management functions of multifamily owners by allowing them to syndicate listings to multiple internet services. In a vast, fractured and unreliable landscape of listings data, these companies are replacing current “tools” like spreadsheets and emails, which cause delays that lead to outdated and incorrect information reaching consumers.

And of course, this increased "garage tinkering" on behalf of RE isn't just confined to the commercial side: companies like HouseCanary use their own analytics to fine-tune predictions and trend lines for SFRs for both mortgage lenders and the families or investors who are buying.  For those not ready or not needing to buy at the moment there's RentRange, which analyzes the occupancy side of the equation for landlords and tenants. And finally, when any of those "garages" need to be maintained, upgraded, or remodeled, there's BuildZoom, where a database combing over 100 million building permits, along with a massive and growing set of customer reviews allow people to select their preferred contractors, based on locality, reputation, price, etc.

INNOVATION HAS SAVED COUNTLESS HOURS

All of these niches and needs, from commercial to SFR, from NY to SF, and from agent to tenant to owner to lender, are areas where innovation was called for-- and innovators responded. Such responses now save teams hours each day that would otherwise be spent doing manual updates across sites and ensures their listings are always accurate and up-to-date. Brokers also benefit by getting faster, more reliable data on new listings coming onto the market.

But this explosion in real estate tech startup activity comes with risk. There will be an inevitable shakeout. Buyers of RE tech-- as opposed to those buying and investing in the real estate itself are advised to evaluate the long-term viability of any startup. Operating at the leading edge of tech adoption is a delicate balance in the midst of ever-shifting economic conditions, though the benefits created by the jump in real estate tech startups will far outweigh the costs. We expect that the future will see continued efficiency gains in information speed, accessibility, and accuracy.

IT'S ALL ABOUT EQUIPPING HUMANS WITH THE RIGHT TOOLS

But if Real Estate Tech 1.0 was about bringing real estate data online, those working in the “garages” for Real Estate Tech 2.0 will find that it’s about equipping humans-- the agents and brokers, with increasingly improved platforms to harness that data and run their businesses even more effectively. Brokerages with the best data ultimately make the most money. This applies equally to agents who can now access real-time information and collaborate with colleagues based on a standard system of record.  Ultimately, these tools save agents time, and their parent firms money, leading to leaner and more profitable businesses.

Some savvy business people already anticipated these changes on the consumer side of the equation, and launched startups in the early 2000s to provide online access to home and apartment information: Zillow, Trulia, HomeAway, and Rent.com are just a few. Joining them are legacy software companies such as CoStar, Yardi, and RealPage, who have updated their platforms to be more user-friendly. Other startups like LoopNet (now part of CoStar) have democratized commercial real estate information by providing online access to buyers and sellers of commercial properties nationwide.

This new "connected" generation of brokers and agents are attuned to the fact that mobile technology is essential to run their business. As expediency and safety are addressed on both sides of the transaction, brokers, buyers, and renters are all influencing the way people search for properties. With 92% of consumers using the internet as part of their property search, the pervasiveness of mobile technology is a given.

And those “givens” have led to a new kind of real estate investment. Venture capital is pouring into real estate tech startups, and those particular “garages” raised $1.5 billion in 2015.  Established tech providers are shortening the go-to-market time with startups for fear of being left behind.

Trinity Ventures developed a unique perspective on RETech trends since an early investment in LoopNet in 2006. More recently, they have made investments in commercial, multifamily and residential housing with bets in VTS, Rentlytics, and DotLoop (acquired by Zillow), as well as an investment in IoT (Internet of things) company, Nest.

All three sectors of RE are undergoing the same fundamental transition to improved data management software, depending on where technology can add the most value, improve information flows and automate tasks.

HOW CAN YOU BEST STAND OUT FROM THE CROWD?

As property information becomes ubiquitous, customer service and branding will become real differentiators, especially for millennial buyers who tend to be tech-savvier and more decisive as a result of native information access. Real estate professionals will, in turn, leverage social engagement and data in how they manage their relationships, provide insights and guide people through the process with a particular emphasis on transparency.

We can expect technology adoption across the industry to continue to be rapid and expansive. Meanwhile, experts expect to see an increasing number of homes listed for sale at a modest growth rate for the remainder of 2016, both in the United States and globally.  A connected RE marketplace can help speed up the process by allowing stakeholders on both sides of the deal to connect and transact with greater ease and fluidity.

PL_Infographic_052016

More than any other sector dependent on technology, real estate demands innovation that can address the two-sided marketplace. Given the size and complexity of transactions, the best real estate technology, rather than eliminating the intermediary, will strengthen the role of professionals working in the industry.

One of the most profound innovations in RE comes not from the ease with which housing and commercial stock can be monitored, tracked, or leased, but the expanded degree to which people can now participate in real estate investments via a marketplace. This investment model is successfully led by real estate crowdfunding platforms like Patch of Land, PeerStreet, and RealtyShares, which allow investment in real estate loans on a fractional basis. By bringing together thousands of unrelated parties online, loans are fully funded in minutes, creating a perpetual source of growing, redundant capital as new investors are added daily through innovative marketing, PR and branding efforts.

Similarly, LendingHome is tackling the inefficiencies and investment opportunities in the consumer mortgage space alongside fintech disruptor SoFi, both of which target consumers who have little desire to transact with a traditional financial institution for their mortgage financing needs. Finally, the newest breed of real estate investment marketplaces are creating seamless access to the single family rental asset class. Roofstock, led by SFR veterans, has developed institutional quality data and analysis tools to allow any real estate investor to select, research, analyze and purchase a cash-flowing, leased-up property with just a few clicks.

Perhaps PeerStreet's co-founder and COO Brett Crosby said it best, and spoke for most of REtech when he said they were, "applying lessons learned at Google to a space that's been almost untouched by technology."

Which makes complete sense. After all, when Google's founders returned from Burning Man in 1998 to launch their company, they set up workspace in current YouTube CEO Susan Wojcicki's Menlo Park garage.


This contributed article originally found on: Private Lender.

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