Where did all of this start?
That, of course, depends on with who you talk to but for our reference, I will start back about around 2009. A solid decade ago. Think about where we were. Zillow was only four years old and LoopNet believe it or not started way in back in 1995. The DarkStar was even then the evil empire, with all the horrific sequels and frail threats of universal domination still to come. Most of the globe was deep in the middle of The Great Recession. Deal flow, as the brokers call it was about down to zero in real numbers. And yet there was a glimmer of hope for #CRE. That flickering little light was something called software and someone really smart stated that sooner rather than later “software would eat the world.”
Some of those brokers who had about nothing to do looked at the world of technology and thought that Software As A Service was something that no one had yet to try and apply to their business. They also looked to the residential side of real estate and realized that they were even farther ahead in their thinking and had started to build onto that basic premise. The internet was just starting to explode and mobile phones or what would become “smart” phones were showing up in the hands of almost every human being on the planet. The entire world became mobile and accessible. Commercial real estate noticing the changes remained…the same.
Beyond those young upstart brokers more and more people with the experience of technology started to flow into the space that they simplistically named #CRETech and #PropTech. With those tech people and their ideas about how the software worked and the business models, they had used many times before they went out and raised BILLIONS and BILLIONS of dollars to fix commercial real estate. Some have had to this point some might say a fair bit of success. WeWork has changed the way people use and work in a space. Airbnb has changed the way people decided where they are going to sleep. Compass is changing the way…well, that’s still to be determined. Opendoor has changed the way you buy and sell your home. And many more would say they are on the way to doing all of those things and many more. Commercial real estate has…stayed the same.
Where are we today?
It has been mentioned to me in a meeting somewhere that there are more than 450,000 buildings in the boroughs of New York. Not sure if that’s exact but just think of the scale of all of those buildings. If you are a software company that has a product that will detail the exact electric efficiency of a structure or the air quality of that same structure where would you start? What price could you sell that product for? Who can afford to pay for it? Is the data collected worth more than the product itself? How do you install and track every part of that process? I could come up with about twenty or thirty more questions for just one of those simple solutions? And that’s just the beginning.
The size of commercial real estate just by itself is a market that many tech providers and investors see as a never-ending pile of subscription cash. They think that if you take 450,000 buildings times x number of software “seats” a month to manage all of it and you are a global unicorn. And from where they come from I understand their thinking. But, commercial real estate has said, ” uh, not so fast.” Why to this point has no one solved the problem of scale? A large well known real estate company we are all familiar with has just over 1000 buildings in their portfolio. For most if not all of the companies I know trying to work with them. If they were to get a “yes” to implement their product, it would take them at least three to six months to possibly get 50 of those buildings on board. Also the manpower and follow up to do that is an enormous cost. And none of them are anywhere near what that takes. Here is the bigger problem. Who will have the patience and money to support any company just to do 1000 buildings? Should it be the owner of those buildings? In my opinion, Hell NO! So, commercial real estate stays the same.
The Value Chain.
Part of another problem is the pieces of data. The data that all of the companies are collecting and accumulating. Where does all that data go? What value does it have? Why collect it all if it’s not to create a value chain of data, to begin with? Is data not the fuel that drives the entire market that is global commercial real estate? If that is indeed true then it’s the analyzation and decision making that comes from that data that has the true value. I’ve said it many times before but to repeat myself one more time whoever owns that value chain of the transaction and then the value chain of management and maintenance of a structure will indeed win and win forever. Let me explain.
Take the transactional part of commercial real estate from discovery to close. Discovery is when someone finds a structure to purchase. The entire process to vet and underwrite that property all the way until the change of ownership that takes place is driven by…data. Data that is as we sit here today perceived as true and accurate. Where are those data sources? Who owns those data sources? Who decides what data sources are needed and is that the same for everyone? The answer to all of those questions is indeed very different for any and all who practice the business of commercial real estate. And so, commercial real estate remains the same.
There always has been consolidation and M&A in the #CRE and #PropTech industry. Zillow bought Trulia. The Evil Empire bought LoopNet. It’s not uncommon to see other startups partner with and or buy other startups. Private equity has always been a player and will continue to be. Just look at the evolution of TenX. But, in my opinion, we are at an inflection point and that is because of money. All and I mean all of the investors in the last decade up until now into the technology in and around property think they have guessed right. And they want their money back and then some. It’s called ROI. And why should they not get it, they took the risk? But as we all know some if not most will not receive one little penny back. Why? They just Guessed!
What happens next?
Now the professionals show up. What do I mean by that? The real professionals, not the ones’ who just guessed and hoped. Now the people who understand the business of real estate and technology. The people who have been on both sides and understand what it takes to build an actual company. They can, will and are building companies that will serve the needs and wants of real estate, not just the simple and easy tools that no one ever wanted or needed in the first place. They are showing up with the money (real money) and backing that will look at the long tail of commercial real estate and technology.
These industry hitters will help with the consolidation of products and companies. They will help the established software players hungry for growth and expansion thrive. There will be no boundaries, there will be no constraints on further investment from any side. They will use all of the relationships they have built to grow, buy, sell, finance and drive the new era of software companies servicing the industry of global residential and commercial property.
Everyday You Hear About #Property #Technology M&A.
What’s The Reality?
NOW! You Know!
+1 Only true visionaries need to apply.
+1+1 Or commercial real estate remains…the same!