1.12.21 | Industry Insights
By now, anyone who has a stake in the financial markets, from hedge fund managers down to holders of 401(k)s, knows that “FinTech” refers to internet-based technologies that have revolutionized the face of the financial services industry over the past twenty years. FinTech encompasses innovations ranging from online payment platforms, such as Venmo and PayPal to blockchain and cryptocurrencies, like Bitcoin.
As we enter a new decade, the commercial and residential real estate industry is on the cusp of a similar revolution, one that will be brought about by PropTech, or property technology, that will leverage the power of digital platforms to enhance the way commercial and residential real estate transactions are done. It will not only enhance the consumer experience of buying, leasing, and selling real estate, but will also have implications for the way developers, investors, and property managers do business. PropTech is reshaping the real estate sector in the same way technological innovation has transformed so many other industries, like Uber’s shake-up of the taxi business and Airbnb’s rapid expansion in the lodging market.
Meteoric Rise from Infancy of Maturity
Only 10 years ago, the PropTech industry was still in its infancy, a blip on some far-off horizon. Consider the exponential growth in financing that PropTech has attracted over the past decade. In 2011, real estate technology attracted $186 million globally. That number more than doubled in 2013 and reached $1.9 billion by 2015. Then, something else extraordinary began to happen: by 2017, PropTech concerns had attracted $12 billion in venture capital. Two years later, venture capital investment in PropTech was set to more than double: 2019 saw that number grow to $31.6 billion. A “virtuous circle” of innovation, financing, returns and ever greater innovation set the stage for where we are today.
And so, as with the coming of such disparate technologies as VR (virtual reality), AR (augmented reality), Drones, IoT (Internet of Things), technology and sophisticated online platforms for consumers like RedFin, Zillow, and Opendoor, PropTech is poised to upend real estate’s business-as-usual. It will sweep through everything from property and portfolio management to investing, leasing, and buying and selling real estate.
PropTech in Action
New York’s Rudin Management Company, which manages a portfolio of 16 office buildings and 18 apartment buildings, decided to enter the PropTech business for themselves by developing the operating system called “Nantum.” This system allows the company to keep track of metrics such as building occupancy, water usage, electricity usage, and temperature across their properties in real time.
The art and science of property management is also being enhanced by PropTech via IoT. IoT allows various applications to communicate with each other, maximizing efficiencies and turning data into actionable insights with the use of AI (artificial intelligence)/machine learning in real time. PropTech based on IoT can expect a big boost from 5G cellular technology, because the increased spectrum available to 5G increases the overall bandwidth. This allows a large array of IoT devices to connect with significantly faster data communication without any human interaction or control; with ultra-reliable, low-latency communication.
Companies like Trulia and Zillow rely on algorithms to comb through seemingly unrelated data sets, to track demographic and economic trends in ultra-specific residential markets in order to attract both buyers and sellers. As mentioned earlier, online realtors increasingly rely on both VR and AR in order to enhance the online customer experience when marketing their properties. Likewise, online realtors are using imagery captured by drones in order to give immersive, 360-degree visuals of their properties.
These firms also are finding that certain AI applications have allowed them to streamline various back-office processes, which save time and effort during the real estate buying process. Examples of this include digital contract signing and the deployment of online “chatbots” which, relying on algorithms, are able to answer basic questions pertaining to the real estate buying process.
The impact of PropTech will likely be enormous simply by virtue of the sheer magnitude of the commercial and residential real estate industry, not only here in the United States, but globally.
Many industry insiders have already attested to the outsized impact of PropTech. A 2018 survey of the real estate sector found that 97% of those surveyed “think digital and technology innovation will impact their business” while 93% believe that “traditional real estate organizations need to engage with PropTech companies in order to adapt to the changing global environment.” In 2020, investors poured nearly $2 billion into the top 10 PropTech deals, according to data compiled for The Real Deal by Pitchbook™ and the Center for Real Estate Technology and Innovation. Many were late-stage investments, and the average deal size was $198.7 million, according to the data.
New York City, which has a tremendous amount of housing and buildings under its control, between the New York City Economic Development Corporation and the Department of Citywide Administrative Services, released a request for proposal (RFP) in December 2020 to partner with a company to vet and recommend PropTech startups that the City could roll out to its owned and managed real estate portfolio, including warehouses and New York City Housing Authority’s multifamily buildings.
Pandemic Propels PropTech Further
What does the future hold for PropTech in the age of pandemic and economic uncertainty? Some industry experts believe that the COVID-19 pandemic will, over the medium- to long-term, serve as a spur to more innovative PropTech applications. Building operators found that PropTech applications allowed them to manage their properties off-site. Meantime, retail landlords found that applications which allowed them to delve into data and extrapolate trends on everything from foot traffic to tenant turnover gave them valuable information on how to survive these turbulent times.
While acknowledging COVID-19 has taken a heavy toll on the real estate market in New York City over the past year, some believe that the pandemic has only accelerated the search for new technologies in a world where people-to-people interactions carry serious risks. But with a vaccine now being distributed, the real estate market is poised for a comeback and the future looks brighter than ever for PropTech.
Questions: Contact Jigar Shah 212.331.7499 | JiShah@berdonllp.com or your Berdon advisor.
Berdon LLP New York Accountants